Melbourne - price growth stalls while a rental crisis emerges

Median house prices in Melbourne peaked in December 2021 at $960,000 and have now come back 5.2 per cent since that date. They’re now where they were in mid November 2021, highlighting how quickly the market was moving at the end of last year.

The market slowdown is no doubt a relief for many people. First home buyer activity hit a peak in Victoria in 2020 but pulled back significantly last year as the market surged ahead. Most sellers are subsequent buyers and the hot market was a stressful one to sell and then buy in. From March 2020 when the first lockdown was announced to the end of December, Melbourne house prices increased by 30 per cent. Melbourne residents may have been locked down for most of this period, and overall population declined, but demand for houses surged ahead.

The slowdown at this point is unbalanced with the city’s most expensive suburbs seeing declines in pricing, perhaps driven by high mortgage rates. Interestingly, cheaper suburbs are, in the main, still recording year on year increases. It’s possible that continued high levels of investor interest is keeping activity higher at these price points, driven by sharp rises in rents. Investors may not get the same level of capital growth this year as occurred last year, but rental growth is currently very strong.

While prices jumped 30 per cent through the pandemic, rents pretty much remained stable. But while prices have come back this year, rents have risen eight per cent for houses and 13 per cent for units. This sharp rise is set to continue as international migration starts up again. We’re also heading to a housing shortage - Melbourne is always good at supplying housing but the current construction crisis will force down the supply of new homes.

Selling at the peak of the market is always the goal, as is buying at the bottom. But the only guarantee to timing the market is in hindsight.

Many people who sold in August 2021, would have made more money if they’d sold in October 2021. Equally those selling in July 2022 might have made more six months earlier in January 2022

When a market is on the rise, time is your ally. Alternatively, when prices are falling, time is quite literally costing you money. Looking back historically, market dips are always faster than the rise. Price drops typically only last for around a six to 12 month period before they start to stabilise.

The question then becomes: how long does it take to recover and then improve? There’s still a very active marketplace, but buyers simply have less money to spend. Waiting for interest rates to hit their peak will continue to reduce the level of money available in the marketplace and will no doubt continue to challenge prices available. When talking with prospective sellers, their primary consideration comes down to what is more important when making their decision: time or money?

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