Melbourne continues to weaken but there are signs that the fall is slowing.
Melbourne property prices deteriorated further as the market realigned itself after massive growth over 2010. The data from Residex showed the median house price fell 2.35% over the September quarter, which is in line with RP Data’s -2% growth estimates over the same period. While this looks particularly bad for property owners, RP Data’s Tim Lawless says there are signs that the market has seen the worst.
“After a significant run in capital gains, the Melbourne housing market has undergone a controlled correction. Between January 2007 and January 2011, Melbourne house values were up 49%. In 2011, they were down by about 5%. This is possibly because they overshot fundamentals in the prior period.”
Lawless adds that buying activity remains robust with auction clearance rates remaining above the 50% mark.
Oversupply a worry
It’s difficult to overestimate the impact of Melbourne’s growth spurt over the last few years. Various figures have been bandied about as to the average value increase for a typical property owner, with the latest coming from RP Data.
The research firm recently released a report analysing equity growth, and calculates that, on average, Victorians have experienced equity growth of 110% in the last eight-and-a-half years – more than doubling the value of the average property. However, RP Data figures show that the overall seasonally-adjusted median value fell by 5.2% in the year leading up to September. Out of the mainland capitals, only Brisbane saw bigger falls in median values at 5.6%.
Part of the reason for the growth spurt – particularly between 2005 and 2010 – was supply of property being unable to meet the demands of a growing population. “There was a 9.9% population growth spurt between 2005 and 2010, and the rate of construction could not keep pace,” said REIV communications manager Robert Larocca. “As a result, prices increased much more substantially in 2009 and 2010 than they did in the five years previous to that. Rents also increased.”
While Larocca insists that demand is still outstripping supply, others aren’t so sure.
“[Melbourne] had a solid response in terms of construction,” says BIS Shrapnel senior project manager Angie Zigomanis. “We’re actually at a point now from a supply and demand perspective where the markets are probably in balance.”
The fact that buyers are still playing catchup in terms of income following the major price increases also means that Melbourne is likely to stagnate for the foreseeable future.
“Even stable interest rates won’t make the situation any better,” says Zigomanis.
Areas to watch
So, the overall outlook is subdued: but where are the pockets of opportunity?
The focus should be on the middle and outer rings of Melbourne, says Charles Tarbey, chairman and owner of real estate agents Century 21 – especially as first homebuyers creep back into the market. Suburbs with medians below $400,000 are priority number one.
“We’ve seen some of the better returns in the affordable part of the market, which is a result of the population growth, and in the long run, these will turn out to be a reasonable place to buy,” says Tarbey.
However, it’s country Victoria that has impressed of late. Residex figures for August indicate that rental yields are outperforming Melbourne by 1.55%: the largest difference between capital and country in Australia. Tarbey warns that buyers shouldn’t be blinded by yields, though.
“The yields are much better, but capital growth in country areas is going to sit fairly flat for a long time,” he says.
