Like most Australian markets, house prices in Melbourne are still growing, but will likely taper toward the end of the year according to data firm CoreLogic.
Melbourne’s dwelling prices rose by 1.3 per cent over the month of July and 4.6 per cent over the quarter, outpaced by all other capitals except Perth.
“Monthly growth across the Melbourne dwelling market has been easing since peaking at 2.4 per cent in March this year. Month on month, capital gains have eased from 1.5 per cent in June to 1.3 per cent in July. This is still well above the decade average movement in monthly dwelling values (at 0.4 per cent),” advised CoreLogic’s Head of Research, Eliza Owen.
“Growth rates are expected to continue tapering through to the end of 2021, as affordability constraints see a decline in buyer activity, particularly from price-sensitive segments of the market like first home buyers.”
It’s a similar story nationally, according to the property data firm. Across Australia, dwelling prices grew by 1.6 per cent in the past month.
“The 16.1 per cent lift in national housing values over the past year is the fastest pace of annual growth since February 2004, however the monthly growth rate has been trending lower since March this year when the national index rose 2.8 per cent,” said CoreLogic’s research director, Tim Lawless.
Factors affecting the trend may include house prices becoming increasingly unaffordable for buyers, as well as the end of schemes like HomeBuilder.
“With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community. Along with declining home affordability, much of the earlier COVID related fiscal support (particularly fiscal support related to housing) has expired.
On the flip side, constrained supply and low rates meant that prices would likely continue to grow for some time.
“Demand is being stocked by record low mortgage rates and the prospect that interest rates will remain low for an extended period of time. Dwelling sales are tracking approximately 40 per cent above the five-year average while active listings remain about 26 per cent below the five-year average. The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices,” Mr Lawless said.
The Melbourne market experienced a 27 per cent drop in listings between the week ending July 11th and 25th, coinciding with the city’s most recent lockdown.
“We have seen the same trend through earlier lockdowns, where both buyer activity and vendor activity reduce before recovering to pre-lockdown levels once restrictions are eased or lifted,” Mr Lawless said.
Interest rates to remain at current levels
On interest rates, most experts are tipping the current Reserve Bank of Australia settings to remain in place for some time yet, with the prolonged Sydney lockdown contributing to economic uncertainty.
Of the 40 economists and property experts surveyed by comparison site Finder, 75 per cent predicted an increase won’t happen until 2023.
Respondents indicated that the Sydney lockdown meant the RBA was likely some way from achieving its pre-conditions for a rate hike.
"The RBA is still a long way from meeting its conditions for a rate hike – namely inflation sustainably back in the 2–3% target range which will require full employment and wages growth sustainably above 3%. And the latest coronavirus outbreaks and lockdowns risk delaying progress towards its goals,” AMP Capital chief economist Shane Oliver said.
Finder’s latest RBA Cash Rate Survey also indicates that a number of experts are tipping a second Covid-related recession if Sydney’s lockdown is extended again.
Thirty-eight (8/21) economists think that it could take as little as another two months in lockdown for a recession to hit.
Only 11 per cent of respondents polled in a new Canstar survey believe that lockdowns will have a negative impact on property prices.
The survey, conducted in the week commencing July 26, asked 1024 respondents what they thought the biggest impact of lockdowns on the property market would be.
Twenty-three per cent agreed that lockdowns would raise property prices, with a limited amount of houses and units coming on the market.
The same number indicated that lockdowns would lead to increased demand for properties in regional areas, due to “remote working and perceived safety from less densely populated areas”.
Thirteen per cent indicated that the lockdowns would make no difference, as property prices “always increase” while 20 per cent said that they did not know what impact the lockdowns would have.
The survey also asked respondents what they thought the best investment right now was, with 41 per cent indicating houses, 10 per cent units and18 per cent indicating it was better to invest in something other than property.
The survey also polled respondents on their biggest financial worry.
23 per cent indicated that inflation and rising cost of living was their biggest concern.
Meanwhile, 13 per cent nominated rising property prices, while seven per cent said a future fall in property prices or rise in interest rates was a concern.