Melbourne property market surges with catch-up energy
Despite initial fears of a property price crash, Australia’s housing market has stayed in robust shape this year, with signs it’s set to grow even stronger in 2021, especially in Melbourne.
The latest report from property development platform Archistar found capital city markets have rebounded across the board since the easing of COVID-19 restrictions and the standout player has been Melbourne.
The city recorded the sharpest surge of all in home buyer and seller demand as it emerged from its second lockdown last month.
For example, Melbourne’s weekend auction clearance rates rose from 67% to 75% in November, while its newly reported home sales soared by a whopping 70% (compared to Sydney’s 7.5%), says Archistar.
Meanwhile on the pricing front, Melbourne saw a 0.7% increase over November - a considerable feat, given that only a month prior, it was the only capital city to record a drop, according to Corelogic data.
Why did Melbourne’s property market recover so quickly?
Archistar’s chief economist, Dr Andrew Wilson says Melbourne’s strong recovery is an indication that the pandemic-induced dip in home buyer and seller activity was a pause rather than a cyclical or economic downturn event.
“To a large degree, it was those physical constraints to property transactions which created lower prices and caused the market to move sideways during shutdowns. But as we’ve seen, once restrictions eased, markets were up and running again quite quickly,” he says.
Wilson adds that sentiment also had a part to play.
“Back in April, there was no real light at the end of the tunnel, but once [lockdown measures were lifted and] more positive sentiments started to come through, that really built momentum through the winter markets.”
And this momentum is continuing even now as markets begin winding up for the year, says Wilson.
“It’s sort of that catch-up energy in Melbourne right now … buyers and sellers that were forced to sit on their hands during shutdowns in spring in Melbourne are back in the market quite strongly.”
First home buyers overtake investors
With so many buyers keen to join the property ladder all at once, the home loans market has also made a strong comeback. Home lending for owner occupiers reached a very high level over October, hitting $15.8 billion, according to Australian Bureau of Statistics figures.
“We would have had another record month over October for owner occupiers except predictably lending in Victoria fell away because of the shutdown… but we will see a bounce back in lending in Victoria,” Wilson says.
And for the first time in the ABS’ modern series, lending to first home buyers surpassed investor lending (by $200 million) - a feat partly supported by government incentives like the First Home Loan Deposit Scheme and Homebuilder scheme.
“What’s even more remarkable is that if we look back five years, the level of investor lending was about the same level as owner occupier lending and now it’s gotten to the point where it’s falling below lending to first home buyers,” Wilson says.
However he adds a caveat that although first home buyer activity is strong at the moment, it’s still not as strong as it was back in 2009. So that tells you these findings are more a sign of falling investor activity than a huge surge in first home buyer activity.
The question then, is why that might be the case? Besides falling rent values and record high vacancies in parts of the market, particularly inner city units in Melbourne and Sydney, Wilson says the main issue is that it’s still challenging for investors to be approved for a loan.
“Investors are still pushing against what is a culture of negative attitudes from lenders to investors,” he says.
“With owner occupier lending booming at the moment at record levels, banks aren’t overly fussed about still having restrictive lending for investors [since the drop-off in investors isn’t creating a real negative on their balance sheet].”
But in 2021, with property prices expected to keep rising, the appeal of capital growth may draw more investors back into the market, says Wilson.
If you want to learn more about Australia’s housing market in 2021, read our property forecast, or head on over to our home loans guides section for tips on how to buy your first home or investment property.