What is really happening in Melbourne's property market?
Jellis Craig CEO, Nick Dowling
After the record-breaking year we have experienced, it is easy to forget the position we were in 12 to 18 months ago. Picture August 2020: lockdown fatigue had set in and global economists and commentators were predicting dire economic conditions, with significant falls in property prices.What a difference a year makes.
In fact, the results from when we emerged from our extended lockdown in November 2020 have been nothing short of astounding. A 90% average weekly clearance rate for the majority of 2021 across the Jellis Craig group, Melbourne's median house price climbing over $140,000 in 12 months^.
In the period from January to August 2021, we saw attendance at our open for inspections increase by 32% compared to the same period the year prior.
More than ever before, it is emotion that is driving the demand and soaring price growth.
The pandemic has led to expats returning home to Australia earlier than they may have initially intended.
Additionally, the pandemic has seen people prioritising home by bringing to light the ease with which they can work from home and allowed people to question where and how they want to spend their time.
There has certainly been a sense of ‘FOMO’ with buyers getting priced out of suburbs or property types in a matter of months.
Finally, there is the hotly discussed ‘regional boom’, where a huge number of Melburnians continue to drive growth in regional locations by purchasing both main and secondary residences outside of the city. Similarly, the rental market has increased by up to 20% over a 12-month period in some regional towns with the trend of Melburnian’s fleeing the city to work from home in regional areas. However, these factors alone have not caused the staggering price increases. Perfect economic conditions thanks to consistently low interest rates, government budget initiatives and an increase in household savings, combined with the above emotional factors are what have led to a 16%* annual price growth in houses in Melbourne.
By contrast it has been a turbulent 12-months for the metro-Melbourne rental market due to the impact of COVID-19 on overseas migration and the casual work force, combined with the significant changes in law introduced through the amendment to the Residential Tenancies Act. The disparity between the sales and rental market is highly unusual, given they typically run in parallel with one another.
However, these disparities are starting to align. Vacancy rates continue to decrease in Melbourne and there are early indications that investors are returning – a positive sign for the rental market.
Across the Jellis Craig network, our skilled team of agents have adapted very well. With 18-months of going in and out of lockdown, we have learnt to take the uncertainty that comes with the pandemic in our stride. By taking advantage of our suite of tools and technologies, our teams are able to continue presenting our clients' properties to the market and transacting with confidence. Similarly, we have found that both buyers and vendors are willing to commit to decisions whilst in lockdown and through non-traditional channels.
There is no doubt we are in the midst of a record high growth period.
Inevitably these record highs will rebalance, as the property cycle always does.
My predictions for the property market for the next 12-months are steeped in learnings from the previous 18-months. Most consequential is that in our industry, activity builds rather than dissipates. In the short term, I predict that the disruption to the market during late winter may result in a reduced level of available stock in spring. However, the past has told us that after a period of lockdown and reduced activity, prices and demand tend to surge strongly once life does return to a semblance of normality.
According to the Government's COVID Response Plan, towards the end of 2021 and into 2022, lockdowns will be less likely and borders will reopen. For the property market, this will mean that investors will once again return to the market, as will, with the possibility of international immigration, overseas buyers. Both of these factors will act as positive tailwinds. These positive changes could lead to tweaks from the Government to level the surging prices. This may be done by increasing interest rates, more restrictions on lending, or hiking stamp duty fees.