For those of you that follow me, you will know I detest two things in the property market.
Firstly, generalisation because Melbourne (or any other major city) is made up of so many different property markets with different types of dwellings, so how can one paint a blanket generalisation on such a large, wide and varied market?
Secondly, I detest most media reporting around residential property in which journalists continue to prove over and over again that they are there to merely fill in the space between the advertisements. All hype, scaremongering, sensationalised and exaggerated forecasts etc. What suprises me more is when I speak with potential clients “they honestly latch onto and believe what they read or hear in the media from journalists!”
Why do I share this with you now and what does it have to do with the Median House Prices in Melbourne?
I need to generalise and apologise upfront for it 🙂
In general, the Melbourne property market has consistently been one of the strongest property markets and performers over the past few decades where over the past 40 years Melbourne house prices grew by an incredible 7.9% per annum and Melbourne unit prices grew by 7.73% per annum over this period.
Covid-19 and Property Values
My clients keep on asking how will Covid-19 affect this consistent performance in Melbourne and other capital cities? A fair question to be asking.
To date, whilst some pockets of a very large Melbourne property market have corrected the vast majority of properties have remained relatively flat whilst some have actually achieved higher sales prices than before.
Just as in other capital cities across Australia, the inner CBD property market has been negatively affected on the back of many units being in the short term rental pool aimed at tourism or rented out to the student population in which both sectors demand has been halted, yet supply is strong. A unit coming off the short term rental market is also furnished and with a sudden increase in rental supply, the rental demand tracked in the opposite direction leaving many units empty and worth less.
The other markets to lose value are those in which a very small percentage of the population can afford to buy or rent. Again, supply is higher than demand and buyers are negotiating discounts and rightfully so.
In the property markets where 80% of the population can afford to buy or rent, these markets remain primarily unaffected, same occurred in the GFC and it was in these markets where demand is the strongest that they also gain growth after a GFC type event.
Other factors underpinning the majority of property at this time and looks to continue for a while yet is that interest rates are at historical lows and predicted to remain there into the medium term future and also the economic principle of ‘supply and demand’.
Statistics continue to demonstrate that there are less sellers in the market, even though there are qualified buyers out there, vendors are holding firm still due to uncertainty. A low supply backed up by demand results in prices holding firm (some areas there is discounting naturally) whilst some properties are attracting higher prices from buyers.
Further, if you look at prices from the same period a year ago you will notice that even though the market has corrected according to the media, across the board prices are still firmer than they were this time last year and in an economy such as residential properties, cycles are natural and without a doubt they occur … demonstrating that this is not sensational news, it is a natural market cycle forced upon us by the Corona Virus.
What’s happening in Regional Centres
Focusing on market statistics in regional cities and centres of Victoria and other States you will notice that a strong proportion of these markets have demonstrated continued growth which is contrary to what you have read or heard about through your media channels.
Yes, check it out and you will discover how places like the Sunshine Coast (probably the number one location in Australia) has attracted an incredible demand for property to own or rent and this continues to put upward pressure on property values and rental yields.
With very similar results occurring in other pockets of South East Queensland, New South Whales, Victoria and South Australia.
This has been driven by demand from Australians realising that they could live and work outside of capital cities and commute in when required. The results are paying a lot less and getting way more property for their buck. Another factor is the Government’s HomeBuilder $25k stimulus package to build a new home or undertake a renovation.
As soon as this stimulus was launched, already sparse supply of land was snapped up due to the time frame in which the $25k grant needed to be effected. Boom, land developers took advantage and immediately increased their prices as demand way outstripped any supply of land that was Registered or close to registration … with a waiting list!
Builders have realised the opportunity and it has been said that they too are increasing their build prices.
The way of Australia “whenever the Government launch a positive initiative, suppliers jump on the band wagon and take higher profits!”
The other factors that affect Median House Prices include population growth which drives demand, and Australian population growth on the back of immigration has slowed dramatically, yet forecast to grow significantly once international borders reopen. Australia is deemed by other countries as being the ‘lucky country’ with many skilled people applying to immigrate here.
A question I always ponder is “If others identify optimism and opportunity for themselves and their families in Australia, why are so many Australians pessimistic?”
Back to other factors, Employment plays a significant role (usually) around property prices and on the back of JobKeeper and JobSeeker this has afforded homeowners to hold onto their properties and supported by the ‘bank holiday period’ too. No government or bank wants Australians to lose their properties or the bottom of the property market to fall out and hence the current and probable future offers.
Then bring in Low Interest rates, supply and demand and with uncertainty vendors are not selling and with Lockdown 2, it is too early to tell but early signs indicate the similar property cycle remains in play with far fewer homes on the open market. And yes there are a small number of market and private sales continuing throughout Covid and by the time market statistics are released Melbourne and other Capital cities will be in the next phase of the property cycle anyway.
Logic over Emotion
It is our view that the vast majority of property will hold it’s value during this period, even if Australia experiences a recession. A recession under the current numbers (of employment, interest rate, demand and supply) logically should not impact on property values to any significant degree. Sure if you are focused on the percent of the market where the majority cannot afford to buy or invest then you have room to negotiate hard; however if you are focused on the wider market where most can afford to buy, invest and rent then market fundamentals support stability of values.
As per above, if you are investing Regionally there are growth locations worthy of investment today, where waiting will cost you more.
Then again, in life there are those 80%’ters who are always waiting to see what is happening … and they are the same who hope for something to happen, because they are emotionally invested and then they wait and see again, what might happen. You know these types who when you did deep have a poor relationship with or too money, having been programmed to think only the rich should have money, or money is evil or they are undeserving. My weakness is trying to help these very people reeducate themselves to the point of believing that money is fantastic and allows you to make many positive impacts on other peoples lives … and it grows on trees when you plant the right trees!
If not now, then when?
It is always a good time to invest or buy to live in, it is only your thoughts that will prevent you from doing so or will help you identify every reason why you should be buying or investing.
I read a simplistic yet clever quote recently “life for the vast majority will still go on.”