Melbourne’s property market may be facing unprecedented challenges as the city endures ongoing restrictions, but from an economic perspective the market is continuing to hold up in a resilient fashion.
The month of July saw 17% more listings brought to market in Melbourne than the same month last year. The rise in fresh listings implies home owners have become more willing to test the market. While new listings are ramping up, the total listing count remains 15.2% below last year’s level nationally and 12.5% lower across the combined capitals. The diverging trend between new and total listing numbers implies a strong rate of absorption where demand for established housing stock is outweighing advertised supply.
With interest rates at record lows and expected to remain there for some time, ready access to finance and improved affordability are expected to continue to drive demand in residential property.
Property and economic experts are confident Melbourne is well positioned to emerge from the current national health crisis in a positive position.
Introduction of the Federal Government’s JobKeeper and JobSeeker schemes has spared Australia from potentially crippling unemployment levels.
REA Group chief economist Nerida Conisbee says the economy’s resilience, coupled with the stability of the banking system, has so far limited the impact of COVID-19 on real estate.
“The banks are not foreclosing on people’s mortgages, and we can see this in the very small number of ‘distressed’ sales we are seeing on realestate.com.au. Nationally in June we saw only five ‘distressed’ sales of residential property, out of more than 160,000 listings, which is indicative of just how well the market is holding up.”
Supporting this assertion are citywide figures that show only a small drop in property values, with dwelling values in the 3 months to June, falling on average 2.1% across Melbourne, CoreLogic data shows.
But CoreLogic Head of Australian Research, Eliza Owen, points out that the most impacted sections of the market are also those that have experienced the most pronounced growth over the past 12 months.
“The largest declines in dwelling values over the June quarter occurred in regions where properties are more expensive and are susceptible to more volatility in their growth cycle,” Owen says.“
This is demonstrated in the annual growth rates, which show that even though the inner east has shown the largest declines in the June quarter, the region has the highest capital growth rate, year-on-year. In other words, most expensive parts of the market have higher highs and lower lows.” As 2021 approaches, ongoing financial stimulus measures and a reduction in international migration are among the key factors that will impact Melbourne’s property market – in particular the rental sector and, by extension, investment properties. Conisbee says the support of the banks will be critical to the fortunes of Melbourne property owners and the wider market.
“They’re extending mortgage payment options to many borrowers, rather than deciding that a person cannot pay and taking action against them. As a result, the September ‘cliff’ that some were anticipating when the initial JobKeeper and JobSeeker payments were scheduled to conclude, is looking increasingly unlikely to occur.”
Furthermore, recent government announcements in relation to the job keeper extension in Victoria will also assist this structural support.
Owen points to restrictions on international travel as an important element that will play a role in shaping Melbourne’s property market recovery, increasing rental vacancies and placing downward pressure on rental prices.
“In some of the inner city markets there is a structural impact from COVID where a lot of international migrants, most of whom rent when they first come to Australia, can no longer get here, so the rental market will be impacted dramatically,” she says.
“There are also high job losses in sectors such as food and accommodation, services, arts and recreation. People in those sectors are very often renters and live closer to the inner city, so that’s where we’re seeing more of an effect.”
Whilst the Stage 4 lockdowns being experienced in Melbourne will present many new challenges, early available evidence suggests Melbourne will emerge from 2020 in a solid economic position, which will in turn support a resilient residential property market into 2021