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Melbourne Market Update

Melbourne has certainly been a good place to invest in property in the last year - with the city experiencing 15.1% annual growth according to Core Logic. And banks and analysts are seeing continued if more subdued growth for 2022.

Growth predictions of 4.9 to 8 per cent

All four major banks are predicting price growth for the Melbourne real estate market in 2022. At the top end of the scale, Westpac is predicting an increase in values of 8 per cent. NAB is predicting a slightly softer 4.9 per cent. The upgraded forecasts are a marked change from the pessimistic predictions issued by banks at the start of the pandemic, and reflect the resilience of real estate markets throughout the country in the past two years.

Beyond 2022, banks are predicting a correction for all Australian markets.

Westpac’s chief economist Bill Evans, who is predicting a rise of 8 per cent for Melbourne in 2022 followed by a 5 per cent correction in 2023, said a rise in interest rates would likely be the trigger for a further slowdown in growth rates.

“But for now, the market has weathered the latest COVID disruptions very well and price momentum has held, prompting us to revise up the near-term outlook for prices before a correction phase begins in 2023 and likely extends into 2024,” Mr Evans wrote.

Inner-city resurgence

CoreLogic is predicting that a return of international migration will see the resurgence of inner-city markets in 2022 and 2023.

“Notably, international border closures have been accompanied by record low rates of foreign purchases of Australian real estate, highlighted in the June 2021 quarter NAB Residential Property Survey. NAB reported that the share of foreign buyers in established housing markets hit a record low 2 per cent in the June quarter, and trended slightly higher at 2.2 per cent in the September quarter,” the firm wrote in its 2022 outlook.

“As with domestic housing purchases, more liberated international travel in 2022 and 2023 may see a ‘catch-up’ period of foreign acquisition of Australian real estate, as overseas investors and migrants can visit to inspect property. The return of foreign buyers and overseas visitors is likely to see a revitalisation of areas that have been traditionally popular with overseas arrivals, such as inner-city markets of Sydney and Melbourne.”

Auction action back on the cards

Melbourne’s auction market, subdued during the city’s protracted lockdowns, had a renewed energy in December, with signs pointing to a strong start to 2022.

Melbourne had 19,788 auctions and a clearance rate of 69.7 per cent for the December quarter compared to Sydney, where 14,906 auctions were held at a clearance rate of 69.9 per cent.

Melbourne’s auction volumes were up considerably compared to 9,493 over the September quarter and 7,415 over the December 2020 quarter.

The city’s clearance rate was 69.7 per cent over the December 2021 quarter, up from 62.8 per cent over the previous quarter.

All nine sub-regions in Melbourne saw an improvement in clearance rates over the December quarter according to CoreLogic. 

The Mornington Peninsula was the best performing sub-region over the December quarter (78.4 per cent), followed by the Outer East (74.9 per cent), North East (71.7 per cent) and North West (69.4 per cent).

Headwinds ahead

The property market at a national level is facing several headwinds in the new year according to analysts

CoreLogic head of research Eliza Owen said that chief among these were the prospect of rising interest rates and further intervention in the lending market by the Australian Prudential Regulation Authority (APRA).

“There are accumulating headwinds for property market performance in the coming months, in the form of higher supply of advertised stock, normalising interest rates, affordability constraints and the possibility of tighter lending restrictions.”

First home buyers to show patience in 2022 

One section of Melbourne’s home market that may be challenged in 2022 is first home buyers, unless new government incentives are introduced. 

The proportion of new home loans taken out by first-time buyers had already been falling in 2021 and would likely continue to do this year, according to CoreLogic’s Eliza Owen.

“First home buyer demand is expected to continue to fall in 2022, having fallen consecutively for the past nine months. Although in decline, the number of first home buyer loans secured (which was 11,402 through October) remains above the decade average (8,612), but could have further to fall amid deteriorating affordability, and the winding down of first home buyer incentives, which brought forward demand,” Ms Owen said.

“This decline could be partially offset by any reactionary government policies in 2022, such as a refresh of federal government home loan guarantee schemes,” she added.