RPM Residential market and third quarter economic review revealed that, although Melbourne faces severe foreclosure restrictions for much of the three-month period, strong demand for residential properties continued through the September 2021 quarter with 6,445 auctions held and a close to 90% liquidation rate.
According to Michael Staedler, RPM Group Manager for Research and Data:
“The reduction in supply combined with a high liquidation rate suggests the presence of fierce competition among property buyers. Low borrowing costs and increased savings from the pandemic have provided buyers with new ammunition to raise prices, despite previous strong price growth already leading to the emergence of limited affordability. “
For this reason, quarterly housing market growth has accelerated, with the median price of houses and apartments hitting a new record. However, the quarterly increase in unit prices was more modest, with unit markets in city centers remaining plagued by high vacancy rates due to the continued ban on foreigners from entering Australia.
Sales for the September 2021 quarter saw a preliminary median home price of $ 1,072,500, an increase of 6.0% from the previous quarter and a strong increase of 24.8% from 859,500 $ in the same quarter a year ago. The third quarter also saw a unit price of $ 680,500, an increase of 0.4% from the previous quarter and an increase of 9.1% from the same quarter a year ago.
With the exception of the inner ring, all of Melbourne’s rings have experienced positive growth since June.
After hitting new highs, median prices fell 3.5% to $ 1,704,500. Homes in the central ring rose 4.7% to $ 1,264,500, while homes in the outer ring rose 1.8% to $ 818,000.
Home prices in all Crowns are even higher than a year ago, with homes in the Inner Crown increasing 12.7% and those in the Middle Crown by 28.1%.
Mr Staedler highlighted Regional Victoria’s strong performance, praising “its impressive price growth this quarter, continuing to outperform metropolitan Melbourne in the unit market, although for the first time this year homes have seen growth. lower than that of Melbourne ”.
Homes in the Victoria area now cost $ 570,000, while units are $ 394,500, representing increases of 2.4% and 1.9% from the previous quarter.
When comparing the area’s current prices to a year ago, homes are up 28.2 percent, while units are up 19.2 percent. The prevalence of work-from-home options has contributed to the sustained price movement in the Victoria area, allowing people to prioritize lifestyle homes and an increased demand for additional land.
The higher demand for land is reflected in a 2.5% increase in the preliminary median land price for the September 2021 quarter to $ 326,000 from the previous quarter, and 6.7% from the same quarter from the previous year.
The head of RPM’s research and data group noted the relative advantage of the affordability of new homes in growth areas, which has developed as vacant land prices have increased at a slower pace. than the existing housing market.
“This increases the attractiveness of new homes in pristine areas as more and more people are overpriced in established markets, and offers the prospect of solid lot price growth through the end of 2021 and through. ‘in 2022, despite the larger serviceability test on new home loan applicants which may reduce the borrowing capacity of future buyers, ”he said.
Daniel Gradwell, economist at ANZ, Joined Mr Staedler while weighing in on the impact of the HomeBuilder grant conclusion:
“The whole new industry and single family homes have been driving significant growth, but with the removal of the HomeBuilder key accelerator initiative, we’ve seen approvals plummet. Now a new trend is emerging, with unit and apartment approvals starting to accelerate. “
Unit and apartment approvals in the September quarter were almost double the cycle low for the 2020/21 New Years period, Gradwell explained.
While Mr Gradwell admitted that this has yet to translate into construction activity, he felt it was certainly encouraging for the industry as a whole and had led to some fascinating dynamics within the industry. units and apartments.
“In recent years, high density (four stories or more) has accounted for around 50-60% of unit and apartment approvals, with townhouses around 40%. Now the tables have turned with townhouses accounting for almost 60%, demonstrating that the product is currently ideal for a variety of buyers, given its relative affordability, potential for a prime location and more. space than an apartment, ”he explained.
The popularity of the townhouse product has obviously been aided by the company’s move towards working from home, which can now be a lifelong reality for many buyers, Mr. Gradwell added.
Likewise, the RPM report acknowledged the effect of the suspension of inspections on the sales of townhouses, but pointed out that townhouses are more common in Melbourne’s Middle and Outer Rings, and therefore less prone to changing preferences aligned with work situations.
In addition, compared to the hard-hit downtown apartments in the downtown core, mid-density products and low-rise boutique apartments, both of which retain a significantly higher share of owner-occupant products, have generally carried a higher share of owner-occupied products. the units market, which has two-thirds of the stock classified as investment property.
As a result, unit prices in the Melbourne metropolis rose only 0.37%, from a median of $ 678,000 in the June 2021 quarter to $ 680,500 in the September 2021 quarter.
Turning to the Melbourne apartment market, the study showed that its growth was limited this quarter due to phased closures, which have pushed buyers out of the CBD and into lifestyle property opportunities.
“Unit prices in the first crown declined very slightly (0.08%) during the quarter, but it is interesting to note that while commercial activity stagnated, vacancy rates fell in the first crown to 5.8% at the end of September – although they are still slightly higher than that of the first crown. the two-year average is a significant drop from 7.6% at the end of June 2021, ”the report said.
Economic and real estate outlook
RPM’s report predicted an increase in business confidence and conditions, with ANZ’s job advertisement citing an almost 20% increase in advertised vacancies from pre-pandemic levels.
Another trend that has been spotted by RPM research is the return of investors to the real estate market, even if it seems to be happening at first-time buyers.
While conditions for first-time buyers have been ideal over the past year or so, credited to the HomeBuilder grant, stamp duty incentives, and stimulus programs, investors now outnumber first-time buyers as they go. as the climate changes, and RPM researchers felt that conditions were unlikely to attract more first-time buyers to the market for some time.
“Investors are now overtaking first-time homebuyers, with investors falling to a low of 21% in housing finance last year, but strengthening to 31% this quarter, with first-time homebuyers falling from 30% to just 19%, ”the study reveals.
As it stands, where is the Melbourne property market heading?
Mr Staedler pointed out that although house prices in the capital city of Victoria peaked at 2.1% in March, they have since slowed to 0.7% in October, which, while still significant, indicates that larger price increases will not be sustained.
The head of RPM’s data and research group explained that as a post-pandemic economy approaches, two main reasons are leading to the expansion of the real estate market.
1. Macroprudential regulation
Looking back, Staedler cited the recent decision by the Australian Prudential Regulation Authority (APRA) which lowered maintenance calculations from 2.5% to 3%.
“Since the majority are not borrowing to their capacity and this change only reduces borrowing power by about 5%, this is not a significant change in isolation. However, this provides a clear signal that we are likely to see more changes over the next few months if prices continue to rise, and this could start to pull the property market down a bit. “
2. Interest rate
While the economic outlook is favorable, Staedler warned real estate market players:
“While there hasn’t been a major change yet, it’s important to note that it’s coming, with fixed rates hitting a low in February and rising since. This is encouraging from an economic point of view, because basically it means that the economy is doing well.
“But there are some negative connotations for the housing market, which has benefited from low interest rates over the past 18 months.”
Property refers to something tangible or intangible over which an individual or business has legal rights or ownership, such as houses, cars, stocks, or bond certificates.