By Herron Todd White
December 2019

As we draw close to the end of another year, it’s time to look back on our predictions from February to see how accurate we were in our insights for this year’s residential market in all regions of Victoria.

2019 has been an unpredictable year in the residential property sector. As forecast earlier in February, the fallout from Royal Commission along with the potential changes to negative gearing definitely rocked buyer confidence. As a result, the property market was very much subdued until the third quarter of the year when reductions to the cash rate by 75 basis points and lower mortgage serviceability tests resulting in the removal of barriers which allow banks and brokerage firms to better facilitate access to credit for borrowers started to have an impact.

Melbourne CBD Property Updates

It was originally forecast at the start of the year that the property sector in Melbourne’s CBD would face a decline due to the influx of off-the-plan purchased apartment complexes coming onto the market at settlement due to purchasers being unable to raise finance. Whilst fluctuations remain in some areas, the CBD residential market has surprisingly remained steady and has even taken a turn for the better. As shown below, the median sale price of units has increased greatly from Quarter 1 to Quarter 3 of 2019. This could be the result of the property market stabilising from the conclusion of the federal election, two consecutive rate cuts by the Reserve Bank in June and July and the easement of home loan serviceability tests.

Contrary to initial predictions, 2019 has become the year where banks, state and federal government are looking for ways to increase people’s borrowing capacity.

The federal government’s latest initiative is the First Home Loan Deposit Scheme starting on 1 January 2020, where the first 10,000 applicants will be eligible to purchase their first home using only a five percent deposit. To be eligible for the scheme, buyers must be purchasing a property valued at or below these thresholds. This policy would be ideal for those looking to buy into the CBD as the average median unit price is $525,000.

South-East Property Updates

It was noted at the start of the year that the suburb of Pakenham was previously known as one of Melbourne’s most active housing markets and it was forecast that it would face a softening in the first half of the year and stabilise in the second half of 2019. We were correct in this prediction.

Located approximately 54 kilometres southeast of the Central Business District, Pakenham has been one of the fastest-growing suburbs in Melbourne in the last twenty years as it has been one of the major areas for new residential development in the south-east growth corridors and it is expected to continually increase in the future.

Recent figures show that Pakenham is not only experiencing capital growth every year, but rental yields are above the metro average sitting at 3.8 percent and 2.9 percent respectively. Recent figures show that sales in Pakenham have slowed yet remained steady, as dwellings have increased in sale price by 3.2 percent from Quarter 2 to Quarter 3 after facing a slight decline from Quarter 1 to Quarter 2, averaging $500,000 in median sale price in comparison to the average Melbourne metro areas which increased in median sale price by 4.5 percent to $830,000.

Inner & Outer East Property Updates

The market in the inner and outer eastern suburbs of Melbourne has seen months of prosperity coupled with declines in clearance rates at auctions, median house prices fluctuating over the course of 2019 and a sense of instability across the wider residential market in Melbourne. From January to March, clearance rates were rising and were at 64 percent across suburbs in Boroondara, Stonnington and Yarra’s municipalities. This was a huge increase from October 2018 to December 2018 when clearance rates were at 52 percent. The steady correction in median house prices is highlighted most significantly in the graph below. It indicates a rise in median house prices in direct correlation with rising auction clearance rates.

The steepest increase in housing prices in over ten years occurred over the month of October with an increase of 2.3 percent. Demand for housing right now could be attributed largely to the lowest mortgage rates we have seen in Australia since the 1950s, renewed consumer confidence in the government following the election, the RBA cutting the cash rate by 75 base points and the previously limited supply of housing options and has led to a huge demand across many regions of Melbourne, particularly the inner eastern suburbs.

In Hawthorn, the median house price at the beginning of March 2018 peaked at $2.479 million. Prices declined heavily over the following 12 months to a low of $1.71 million twelve months later. Corelogic highlighted that in July 2019, there had been a 24.26 percent drop in median house and unit prices. The change in house and unit prices was evident since November 2017 but year on year statistics did not highlight the severity of the decline. The market has positively corrected so significantly in the four months since July that Hawthorn is considered one of the strongest recovered suburbs from the downturn. 2020 will be an interesting year for property fanatics, eager to see what the market will produce coming into one of the most exciting times for prosperous growth and market movement in the past decade.

Inner & Outer North Property Updates

2019 has been a year of change, with several contributing factors confronting homeowners, investors and developers over the year. Key issues have influenced the market throughout the year which has been a year of two halves – downturn and recovery. Whilst some of the predictions made in January have come true, others have not. Development orientated areas such as Craigieburn, Kalkallo and Mickleham have seen the growth and affordability we expected and inner suburbs such as Northcote and Richmond performed better than expected. Whilst growth showed signs of a significant downturn over the first two quarters of the year, interest rate cuts encouraged homeowners to borrow and therefore buy which has been seen in the Quarter 3 data. Although inner prices have pulled back over the year, Quarter 3 has indicated strong growth signs which has placed the median sales prices for most suburbs back to prices similar to the start of 2019.

Northcote, 3070, an inner north-eastern suburb of Melbourne has been one of the bigger winners in the area. The suburb boasted a nine percent increase in the median sale price from Quarter 2 to Quarter 3 with the average home in the area costing a cool $1.3 million. This increase doubled that of the Melbourne metro area which as a whole, saw a 4.5 percent increase in the median sale price. The increased price was also reflected by the clearance rates for the quarter, which was 93.8 percent, also significantly higher than that of Melbourne metro at 78.3 percent. Whilst this hot inner suburb has provided great upside in capital growth, rental yields remain under the metro average sitting at 2.6 percent and 2.9 percent respectively.

Although strong indicators of growth have been seen in the outer northern suburbs, capital growth has not outperformed rental yields, with suburbs such as Craigieburn recorded at 3.8 percent for the quarter. The higher rental yield rate indicates a higher demand for rental properties in the outer suburbs, making them an extremely attractive investment for developers or first homeowners. Whilst there was significant growth in the area, the suburb only saw a 4.7 percent increase in the median sale price between Quarter 2 and Quarter 3. In comparison to the inner suburbs, the clearance rates were 76.2 percent which signifies a lack of buying and demand in the area.

West Property Updates

Reflecting on our predictions for what 2019 would entail for Melbourne’s western suburban property market, it is fair to say that we were on the mark for the most part. At the beginning of the year it was believed that Melbourne’s inner west would stabilise after it suffered a bout of negative growth in the latter half of 2018. Stabilise it did and the majority of inner western suburbs such as Williamstown, Yarraville and Altona have all actually shown median house and unit price increases from Quarter 3 onwards. After suffering a fall in the early part of the year, Williamstown has bounced back remarkably with median house prices increasing by around $140,000 in just six months which is illustrated in the graph below.

In regard to middle-outer western suburbs, outcomes were not exactly as predicted. We predicted that these regions would begin to cool after showing moderate growth in 2018 due to the extensive population boom. The majority of suburbs did indeed cool for the first half of 2019 although in correlation with Melbourne’s inner west, the latter half has, in fact, started climbing in median house price. Although these outer suburbs in Tarneit, Melton, Wyndham Vale and Point Cook are in completely different regions of Melbourne west, they have all followed an almost identical pattern in 2019 in quarterly price changes and clearance rates as illustrated below.

Another prediction made at the beginning of the year was in regard to the increase in incentives being used to make purchasing land within the growth region more attractive. This rise in incentives definitely took place with many estates across Melbourne’s outer middle-outer western suburbs offering extremely high rebates of up to $40,000 and dropping land deposit limits to a mere five percent. This tactic was rife when these regions were experiencing a cooling period however now that the market is slowly but steadily bouncing back we can expect the use of these extravagant incentives to plummet.

As a whole, we give our overall prediction a seven out of ten for how Melbourne’s west property market unfolded. Our view that there would be stabilising and cooling periods did take place, as well as our statements that the Royal Commission would impact the market and that incentives would be used to attract buyers during these times. One major forecast which was missed was the current growth in the market which has taken place over the latter half of the year across the board in Melbournes west. It’s fair to say we knew a bounce back would occur, but not so soon.

Speak with a Melbourne Mortgage Broker today.

Share on:

DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.