With June rapidly receding in our rearview mirrors, it's time to take stock of the month and analyse how the Melbourne and Victorian property market has performed.
As we mentioned in our May property market update one needs to look beyond the headlines and identify what is actually happening at a postcode level - and here data should be every property investors best friend. You may also need a reminder here that the Victorian housing market is not a single entity, but a collection of many with distinct performance that varies by postcode.
The Victorian housing market is not a single entity, but a collection of many with distinct performance that varies by postcode
Properties presented well and priced reasonably sell
Despite the obviously challenging year we have had so far, anecdotally agents and sellers are telling us that if houses are presented well, and priced reasonably, they will sell. The REIV also reports that agents are also better prepared for socially distanced measures, and have adapted their processes by reverting to inspections by appointment and online auctions.
Overall CoreLogic reports that the National Home Value Index dropped down -0.7% in June - the second consecutive month it has fallen.
Here’s what’s happening in the Melbourne property market
The five largest capital cities all recorded a decline in home values over the month, with Melbourne dropping -1.1%, the largest slip alongside Perth. This takes it to -2.3% for the quarter, though it is still in positive territory over the year +10.2% for a median dwelling value of $683,529.
The Melbourne market is still in positive territory for the year, up +10.2% for a median dwelling value of $683,529
Houses lead the decline, down -1.3% for a median value of $802,551, while units have declined -0.7% to $575,009 for the month. CoreLogic reports that the biggest falls are at the top of the market, where properties in excess of $959,500+ were down -1.3% over May, ‘...compared with a -0.6% decline across the middle of the market, and a -0.3% decline in the lowest value quartile’. They suggest that the top quartile of the market is more volatile, and tends to lead the market in terms of price changes.
Auction clearance rates for Melbourne are looking healthy again post-lockdown, with the REIV reporting that this was at 72% for the first week of July, up from 66% the previous week. This is a very similar figure for the same week last year, where the clearance rate was 71%. Stock levels are still low however.
Here’s what’s happening in the regional VIC market
Overall dwelling values in regional Victoria were down -0.4% for June, but still up +0.6% over the last 3 months and +4.6% for the 12 months to June. Despite houses in regional markets slipping -0.5% over June, they are still up +0.4% for the quarter and + 2.9% for the YTD. Over the medium term, units in regional Victoria are also trending positive, +1.9% for the quarter and up +2.8% for the YTD.
Overall dwelling values in regional Victoria were up +0.6% over the last 3 months and +4.6% for the YTD
Melbourne and VIC rental market update
The rental market in Melbourne is showing signs of weakness as demand has dropped off significantly. This is especially acute in inner city suburbs where international students and renters dominate. A sure sign of this is rental listings in inner Melbourne postcodes which CoreLogic reports are up over 40%. Asking rents are down for houses (-0.3%) and units (-2.0%), while gross rental yields are close to record lows of 2.8% for houses and 3.9% for units.
What does this mean and what can you expect?
Forecasting the future performance of property markets is notoriously difficult, even more so during this era of Coronavirus that is still unfolding.
Further restrictions due to ongoing Covid-19 outbreaks - like the one currently playing out in Melbourne, has seen another city-wide lockdown and a six week halt on face-to-face auctions and open for inspections from Midnight on Wednesday, July 8th.
Although remote auctions and inspections by appointment will be allowed to continue, this is likely to dent consumer confidence and hamper a recovery in the housing market.
Despite this, many property analysts, industry leaders, and commentators are looking at the big picture and refusing to succumb to scaremongering.
According to Leah Calnan, President of the Real Estate Institute of Victoria, while the industry is disheartened she says they know how to manage amidst the return of restrictions and will be able to get through it.
“Stage three restrictions are not ideal, but I am constantly amazed at the innovation and flexibility our industry is capable of when faced with challenges.”
“It’s not as if we haven’t been here before; most agents were still running a blended approach with regards to their sales campaigns, with virtual inspections and running online auction platforms, as well as public auctions on the street or in the backyard of a property.
“We just have to return to what we were doing a few months ago,” she said.
Tim Lawless, CoreLogic’s Head of Research believes, “...the impact from COVID-19 on housing markets has been milder than initially anticipated. Home values are drifting lower, but not crashing, and transactional activity has shown a remarkable recovery after plummeting in April”. He attributes this to the following factors:
Low advertised stock levels
Government stimulus measures
Low interest rates
Lender measures to aid mortgage holders
He also points out that home values in the country's two largest markets are still in, “...positive double digit territory” over the medium/long term - with Sydney at +13.3% and Melbourne at +10.2% for the YTD. Much has been made of the worsening labour market conditions - specifically unemployment - but for the moment the bulk of job losses have been experienced by a younger demographic who do not hold a mortgage.
Ultimately though, Lawless believes the longer term outlook for the housing market is largely dependent on how well the economy is performing when government support measures are removed.
According to Ms Calnan, there is expectation that the market will pick up in the lead up to spring.
“The reality is that stock levels are always down this time of year. July is a quiet month, and August will start quiet and improve leading into the spring market as vendors prepare.”
“There will certainly be vendors looking to put their property on the market for the spring campaigns, and they’ll start to make those necessary preparations in the coming weeks,” she said.
Home values in the country's two largest markets are still in positive double digit territory over the medium/long term - with Melbourne at +10.2% over the year.
Property investor and media figure Michael Yardney believes Melbourne still has solid fundamentals, though points out that, “...high exposure to overseas migration” is a real weakness moving forward as interest from foreign buyers has slumped. This is also true for thousands of students, who are likely not to move into rented accommodation but study remotely from home.
This is not to overlook the significant risks the housing market faces once government stimulus ends, and the broader headwinds the economy will be subject to as we move into the third quarter of the year.
Clearly current market conditions mean you need to be a smart seller.
How to be a smart seller
We reached out to our community of sellers who sold their home during Covid-19 and found that many of them achieved really good results. This is despite the very real challenges the pandemic has thrown up.
Their overriding experience was that if you have a listing in a sought-after postcode that is presented well and priced reasonably - you are still likely to get multiple offers. Homeowners who have sold recently also noted that though there are less people attending open homes, they are more likely to be serious buyers with pre-approval from a lender.
This also means the agent you choose is more important than ever. You want someone who has adapted to the current climate to help you sell successfully. Use our Smart Seller’s tool to select the top performing agents where you live.