Following on from our March 2022 article, there was no surprise that Melbourne’s property market closed out the financial year in the red as the city felt the impact of rising interest rates, increasing supply and an increase in the cost of living. Melbourne’s property market conditions at the end of June 2022 are far different from how it closed at the end of the previous financial year. Although Melbourne is not unfamiliar with declining values during past market cycles, the current rate of decline is steeper than during previous downturns. The slowdown in part reflects higher borrowing costs as the Reserve Bank of Australia (RBA) lifted rates in May, June, July and August 2022 which brought the country’s official cash rate to 1.85% from 0.10% in April 2022. Since the initial cash rate hike in May 2022 most housing markets around the country have seen a sharper reduction in the rate of growth.
Property values
Melbourne’s property values fell by 1.1 percent in June and by 1.5 percent in July 2022 making its third month of decline after a 0.7 percent drop in May 2022. However, to put this into perspective, Melbourne’s monthly rate of growth has continued to lose momentum since hitting a peak in March 2021. Melbourne’s house sector also continued the downward trail with the sector’s decline increasing from a 0.8 percent drop in May to a 1.3 percent fall in June 2022. Over the year, the median value of a house in the city was up to 3.5 percent in July 2022 which is a significant drop from the 6.9 percent gain seen in May 2022. A house in Melbourne now has an average price tag of approximately $975,850 which is a fall of almost $16,7624 in the average price on a monthly basis.
The Unit sector also lost momentum and in June 2022 the sector’s median value fell by 0.6 percent. This monthly drop adds to the 0.3 percent fall seen in May 2022. An average unit in the city is now selling for $623,249 reflecting a decline of $6,000 in average prices during July 2022. However, compared to June 2021 the median price of units in Melbourne has risen by 2.2 percent although this was a slowing down from the 12 month growth of 3.5 percent recorded in May 2022.
Supply and demand
As expected the Melbourne market is swinging back in favour of buyers. Buyers are back in the driving seat particularly as stock levels are above average levels. There are currently no signs of panic selling as housing conditions cool. In another sign of weakening demand agents are reporting that properties in Melbourne are spending longer on the market and clearance rates are dropping.
Auction markets
In another indication that Melbourne’s property market has lost its liveliness, data showed that a lower proportion of homes auctioned in the city found new owners over June 2022. Melbourne’s clearance rate stood at 53.9 percent in June 2022 which is its lowest point since August 2021. Out of the 3,707 scheduled auctions in the city in June 2022, data showed that 16 percent sold prior while 12.9 percent were withdrawn from the auction block. It appears that market conditions are swaying sellers to secure a deal before auction day. Interest rate rises over the past three months has also driven the clearance rate decline and vendors should be prepared for further drops. There are now affordability issues and an increased number of homes for sale but this has been affected by rate rises and more wary buyers.
Vacancy rates
Melbourne’s rental market has made a recovery as the city’s vacancy rates continued to decline in June 2022. Melbourne’s vacancy rate stood at 1.5 percent at the end of July 2022 which is a further tightening from the 1.6 percent recorded in May 2022.
Outlook
Much of the debate amongst experts now centres around by how much and for how long prices in Melbourne will decline. With more rate hikes to come as the RBA tries to stem inflation, experts predict that property prices in Melbourne will decline within ballpark figures of 15 and 20 percent over the next 12 months. However, as we have seen in the past, the situation can change very quickly. A ten percent decline in the market (an estimate which is being more widely accepted across various private sector forecasts) would take national housing values back to levels seen in July 2021. A factor that may underpin the housing market is that many borrowers have accumulated savings to offset against rising mortgage interest rates as they have been making repayments above the required minimum.
Our property department remains very busy and continues to attend to property transactions both commercial and domestic. Whether you are buying, selling or developing, our property department is available to assist you.
The comments in this article are general and may not apply to your specific circumstances. You should seek your own independent advice.
