I tuned into a Zoom presentation this morning hosted by Domain’s Senior Research Analyst, Nicola Powell. Her insights were, well, insightful.

Here’s a brief summary for you…

Houses are flying. Units are doing OK. Rentals are still on life support.

So why oh why is the market so strong? And what does this look like in terms of key stats?

Price Growth

  • The median house price in Melbourne is at a record high of $975,000 and is set to break $1m in the coming months
  • Houses were up 6% in the March quarter
  • Median house price was up $75,000 in the March quarter
  • Houses in the inner East and inner South were up 8.5% for the year to March, leading metropolitan Melbourne
  • Houses on the Mornington Peninsula were up 17% for the year to March
  • The top end of the market (8.2%) outperformed the middle (6.4%) and lower price points (3.3%)
  • Units are also at a record high median of $570,000 but growth has been very minimal (1 – 2%)
  • Melbourne is the only capital city to currently have both houses and units at a record median price. For example, Sydney’s unit median price is still below the 2017 peak.

Drivers of Price Growth

  • Consumer sentiment is at an 11 year high
  • Interest rates are at historical lows and set to stay low until at least 2024
  • Affordability was recently at a 20 year high due to the low interest rates, even amid record prices
  • Household savings are at the highest level in over a decade
  • Stock is still low by historical standards but slightly improving
  • Buyer demand has been booming, with a “hangover” of pent up demand from 2020 when there was nothing to buy
  • Readjustment of housing needs – people are spending more time at home and wanting more space and better accommodation (E.g. A dedicated study)

Rental Market

  • The rental market in Melbourne has been so bad (especially CBD apartments) that Melbourne has gone from being the second most expensive to the third most affordable capital city to rent in
  • Melbourne could become the most affordable capital city to rent in by the end of the year
  • Rents for apartments are down by 10 – 20%
  • Vacancies were soaring last year but have finally stabilised in recent months

Negative Immigration

  • Net negative immigration (people moving out of Melbourne – intrastate, interstate and overseas) is the highest it has been since the early 1990s.
  • Melbournians were flocking to regional centres in 2020 but this trend is already subsiding
  • 34% of the population of Stonnington are in Noosa at any given time in 2020/21 (this is a joke… it’s probably closer to 45%)

Looking Ahead

  • Demand is still very strong but seems to be easing slightly having peaked in February 2021
  • Price expectation are very high (people are expecting prices to continue to increase at a rapid rate into 2021) but this means less people believe now is a good time to buy and some owner occupiers and first home buyers are retreating
  • Investors are coming back into the market – attracted by capital gains
  • Investor loans are up 43% since March last year
  • Melbourne usually leads Sydney in terms of house price growth and also is more volatile (higher highs and lower lows)
  • This time around Melbourne is lagging Sydney (due to our protracted lockdown) and Sydney has had more price growth to date, which may indicate that Melbourne has more growth to come if it is to match or outstrip price growth in Sydney

Ultimately, these are the strongest selling conditions we have seen in at least a decade and possibly a generation depending on who you talk to.

There is absolutely no doubt that low interest rates have been the main driver.

Matched with restricted supply and strong demand, reasonable affordability, high savings, no travel and a desire to upgrade one’s home environment has culminated in an absolute frenzy to secure good quality real estate.

Our segment of the market (top end period homes in the inner East) has been the best performer overall, aside from the Mornington Peninsula.

Surely things will come back into balance as affordability diminishes, stock increases, demand dampens or interest rates rise.

But will it be months or years until prices plateau, or even decrease? No one knows.

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