The forgotten factor affecting Melbourne house prices | Jellis Craig

November 20, 2015

The forgotten factor affecting Melbourne house prices

The Australian Exchange Rate is an important factor when determining the future likely direction of the Melbourne Housing market, yet its significance is overshadowed by commentary around Interest Rates and other variables.

The graph below shows Median $ House Price trends in Melbourne since 2000 (look at the blue bars). The Australian Exchange Rate is shown by the green line.

Yoy1

Notwithstanding the unique market conditions of 2008-2009 (around the time of the Global Financial Crisis), there is clearly an historic relationship between Melbourne House Prices and the Australian Exchange Rate:

– Melbourne House Prices tend to rise when the Exchange Rate is low and/or falling
– Melbourne House Prices tend to flatten (and even go backwards) when the Exchange Rate is high and/or rising

The reason for this? Foreign currency goes further in Australia when the Exchange Rate is low – put another way, Melbourne real estate is cheaper to purchase for foreign investors when the Australian Dollar is worth less.

Our Australian economy is an open one, and foreign real estate investors and immigrants who seek quality education and employment opportunities for their children rate Melbourne very highly.

You can see by this graph that the Australian Dollar has been on a steady decline over the last 4 years – this is one reason to be cautiously optimistic about the likely direction of Melbourne House Prices over the course of 2016.

Yoy2

Interest Rates, Employment, Business and Consumer Confidence (to name just a few) are important to monitor, because they equally have wide-ranging impacts on the Australian economy. But the Australian Dollar is an important, and often overlooked part of the puzzle when understanding real estate conditions and trends.

Demand from foreign investors will continue, and where demand is strong, the Melbourne real estate market tends to perform well.

This analysis was conducted by Property Analytics, a specialist real estate data analytics company that provides statistical information and advice to industry professionals, investors and developers in VIC and NSW.



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