Melbourne Home Prices Forecast To Rise

Melbourne is the one Australian property market that’s been a little different from the others. While Sydney has also suffered outmigration and higher unit vacancy rates than other cities, Melbourne has been lagging more.

ABS reported 43,000 Australians moved to regional areas from capital cities in 2020. That trend is reversing but not quickly. The new battle with Covid 19 Delta variant is starving out available listings, making units unpopular, creating higher suburban house prices, and making conducting real estate sales transactions a painful exercise.

As listings keep diminishing, Melbourne home prices have risen strongly. As this report suggests, the forecast is for much higher home prices, although cooling a little in 2022.

Covid Suppresses the Melbourne Market

In a period when the property market in greater Melbourne should be booming, the Covid lockdowns appear to have cooled sales activity in the city as you can see in the charts below. Prices however do not appear to be receding. In June, the average price of a house in Melbourne passed the $1 million mark.

What is coloring the Australia real estate market is a severe lack of listings. Total stock for sale has dropped by 30%. This graphic from Corelogic on the drop in new listings is perhaps the most telling statistic:

New dwelling listings in Australian Cities. Screenshot courtesy of Corelogic.com.au.

Across Australia, without listings, demand is more brisk pushing the days on market period down considerably and raising home and unit prices in Melbourne, despite the lockdown restraints.

Melbourne due to its lockdown situation, has actually had a sizable growth in house and unit listings year over year.

Total listings in Australian cities. Screenshot courtesy of Corelogic.com.au.

It’s easy to see the Melbourne metro market has been victimized by the Covid 19 virus and is taking longer to recover. Looking at this from an opportunity standpoint, when the property market reopens in earnest in the region, there could be some great properties available at reduced prices for home buyers, renters, and rental property investors.

Does the City of Melbourne offer the greatest opportunity? Let’s see what the stats suggest.

This first chart shows Melbourne’s home price growth pace is dropping the fastest yet is up 4% over the last quarter.

Since Covid lockdowns appear to be the core issue for sales and home buying, buyers and investors will be keeping a keen eye on the vaccination rate. The government is committed to easing economic restrictions as vaccinations grow.
In the last week alone, 2nd vaccinations have increased 4%. That means a 70% fully vaccinated rate would likely not be achieved until the end of November. Unfortunately, new Covid cases are rocketing in Victoria right now and the death rate in the region is very high.

Quarterly growth in home prices in Melbourne. Screenshot courtesy of Corelogic.

While most major metro housing markets across the world are seeing a rejuvenation of higher density home sales including multifamily, Melbourne Australia is lagging. The Covid lockdown is stopping inspections from buyers and reducing sales and financing activity. Melbourne’s property sales are suffering as a result. Inspections will be allowed however beginning September 19th.

This may set off a wave of online real estate activity given the lockdown is still in effect in Victoria. However, according to the Victoria government website, “Real estate inspections will resume by appointment only. To ensure they’re COVID Safe, only people from the same household can attend the inspection appointment and the real estate agent must stay outdoors during the inspection.”

Record Year for Home Sales in Melbourne

2021 has been a record year for prices and sales. Corelogic reports in this graphic:

Australian home sales. Screenshot courtesy of Corelogic.com.au

In the year leading up to September, Australian property prices rose 18.4%. The spring season was particularly active as it appeared Covid 19 was in the past, but as the fall season waned and Covid surged, the market was hit. Although we’re well down from the peaks of last March, real estate activity in Melbourne continues at a brisk pace, up 0.4% from last August 2020.

Rolling Annual change in home prices in Melbourne vs other cities. Screenshot courtesy of Corelogic.

In terms of prices, only Canberra, Sydney and Hobart have seen higher price increases.

The current median price for a Melbourne home is $770,000 an increase of 1.4% in August. The price is up 5% during the last quarter and is up 15.6% during 2021. The average house in Melbourne is now priced a $954,000 while the median for units and apartments is up to $616,000.

While rents have increased 8% across Australia, rent yields have compressed due to higher property prices. Gross rent yields are down to 2.8% in Melbourne.

Domain House provides a look at unit price changes last June:

Melbourne city region home price changes Year over year. Screenshot courtesy of domain.com.au.

Tim Lawless, Head of research, CoreLogic Asia Pacific shares the monthly report for teh Australian property market including Melbourne.

Home Price Changes

Corelogic home price change report for August 2021. Screenshot courtesy of Corelogic.com.au

Melbourne Home Price Forecast

National Australia Bank report predicts Sydney home prices and Melbourne property prices will rise more than 20% which should inhibit first time buyers in their quest to buy a home.

A National Australia Bank report led by chief economist Alan Oster is predicting home values will continue to surge this year, despite outbreaks of coronavirus plunging major cities back into lockdown. This would see Sydney home prices up 21.6% this year before decelerating to 3.1 per cent growth next year, pushing the median dwelling price up by more than $220,000.

Home prices are expected to keep rising in 2021 in Melbourne. The forecast is for 17.6% rise to the end of 2021 and then another 3.5% rise by the end of 2022. NAB’s Kerr says “record low interest rates and government incentives should keep demand strong through 2021.”

Despite the lockdowns and suppression of in person buying, buyers will be online hunting for any available listings of homes or units. As restrictions are eased in September and October, buying activity will increase. There’s still restrictions on home inspections, but this should only slow closing activity not stop it.

The threat of Covid 19 Delta variant on unvaccinated Australians shouldn’t be underestimated. Cases are rising fast, and further lockdowns could happen. High density rental housing is likely going to take a further hit for this year.

Post-pandemic in 2022, the picture should be much brighter and Melbourne’s troubles might be behind it.
It’s a good time to do your research on properties for sale in the Melbourne and Victoria region. See more on the Sydney property market the Australian property market.

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