The first quarter of 2021 was one of the busiest and most buoyant periods I can remember in my real estate career.

As I had predicated, the property market upswing has begun but is only three months into the cycle, with the first gains in median house prices for some time achieving 2.6% in March and 5.6% for the quarter.

These are extraordinary statistics albeit over a very short-term period, but I expect these conditions will remain, at least for the remainder of this year.

Median Price Growth 
Melbourne  March 2021  Quarter 2021 
Houses  2.6%  5.6% 
Units  1.7%  3.0% 
Regional Houses  2.6%  6.9% 
Regional Units  2.9%  7.5% 
Median Price Houses    $859,097 
Median Price Units    $593,121 

Source: Corelogic
 

Perspective

So, let’s put this two month of positive growth in perspective.

We have just returned to 2017 levels of value. Let’s not forget in 2018, the median house price in Melbourne fell by -11%.

In 2019 following the Federal election, the market recovered and rose approximately 6%.

In 2020, the COVID year, median house prices fell again by approximately -7%.

So, to put the most recent rises in perspective, we still have not recovered the fall in median house prices from last year.

This is not a speculative boom in that it’s not being driven by investors. Investors a few years back, captured 40% of all sales.

They have to date been very inactive and today represent approximately 20% of all buyers in the market.

This is why, in my opinion, that a property crash is very unlikely in the short to medium term.

Drivers

So, what/who is driving this market?

Owner occupiers are out in record numbers.

The growth is not in all property types.

The growth is targeted specifically to owner occupied housing.

The growth is being pushed by downsizers, lifestyle buyers and aspirational buyer’s upscaling.

First home buyers are also very active in this market buoyed by Government assistance programs.

There are more than 4,000 expats returning to Australia each week, many of whom are returning to Melbourne and Sydney.

They are very active in the market and have strong buying power for homes.

Many will be returning to Australia permanently by Christmas 2021.

Domestically, the strong demand remains due to extended lock down during Spring in Melbourne.

Interest rates of less than 2% and easing of restrictions on lending have fuelled this demand.

Longer Term Prediction

The next three months will remain very strong in Melbourne.

Stock supply tends to retreat during Winter, and so whilst demand is expected to remain, that should ensure the continuation of strong upward price growth. So, if you are thinking of selling, the next three months could be the perfect time.

If you wait for Spring toward second half of the year, more competing stock is expected to come on and this should soften the rate of growth.

In any event, with clearance rates continuing to hover for houses around 80%, I expect the median house price growth in Melbourne to rise 15% this year.

Units will not grow at the same rate but will start to appreciate on the back of rising residential land values and demand from owner occupiers.

Apartment prices will not fully recover until overseas students return and overseas migration picks up.

I have been reading commentary that compares this growth period with 1988-1989 and to be prepared for a property crash like 1990-1991.

It is true that prices rose sharply by 35% in a short period of time during 1988-1989 and then prices collapsed by 12%, however, this period cannot be compared to the current time.

In context, the upswing so far in Melbourne is only 5.3%. We have come out of recession. Interest rates in 1990 were 18%, interest rates now are at 2%.

A speculative commercial property boom carried the price surge in 1989-1990.

The current price growth is not speculative. Investors are not in any great numbers.

It is being driven by owner occupiers.

Unemployment rates are falling, and interest rates are not expected to rise for 3-4 years if you look at long term fixed rates.

Further, the market is undersupplied of stock and we are not over building.

The next three years, in my opinion, will be strong but rate of growth will slow in 2022 and 2023.

It is simply affordability that will eventually slow the market as the median house price in Melbourne approaches $1,000,000.

The debt train will simply run out of tracks and the market will flatten and slow but not collapse.

Rising interest rates or a spike in unemployment are the economic indicators to watch.

Property’s Long-Term Power

Houses

  Sept 1990 Sept 2020 Rise
Sydney $173,000 $1.15 mil 565%
Melbourne $137,000 $846,000 518%
Brisbane $106,000 $539,000 408%
Adelaide $105,000 $495,000 371%
Perth $95,000 $480,000 405%
Canberra $120,000 $730,000 508%
Hobart $88,000 $545,000 519%
Darwin $110,000 $480,000 336%

 

Units

  Sept 1990 Sept 2020 Rise
Sydney $138,200 $732,400 430%
Melbourne $113,500 $622,500 448%
Brisbane $92,200 $394,500 328%
Adelaide $81,500 $410,500 404%
Perth $74,700 $375,000 402%
Canberra $95,000 $480,000 405%
Hobart $77,000 $403,500 424%
Darwin N/A $300,000 N/A

Source : REIV

Greville’s Observations

  • Certain stock, ie houses, will remain in short supply.
  • We will have an undersupply of building in the medium to long term.
  • Owner occupiers are the primary driver of our property market.
  • Buyers who are waiting for property prices to fall are going to miss one of the strongest price growth increases in the last 30 years.
  • March 2021 house price growth in Melbourne of 2.6% is the largest increase in median house prices since 1988.
  • Lower density housing is outperforming higher density housing.
  • Regional Victorian housing is outperforming Melbourne metropolitan housing.
  • Premium end of the housing market is leading the acceleration in the rate of capital growth.
  • Houses for rent are in very short supply.
  • Rising debt to income ratio and affordability expected to put brakes on the market in 2022.
  • New listings are rising, but to date, the rate of absorption is so strong that supply is not enough.
  • Fear of missing out and urgency is apparent among buyers.
  • New/high density apartments have double digit vacancy rates.
  • Demographic shift to detached housing and density shift, with focus on a flexible working environment. This has fuelled regional markets and skyward growth now to middle and outer suburban areas.
  • Older style flats built from the 1930s to the 1970s in low density blocks in suburbs like South Yarra, Elwood, Toorak and Carlton are starting to move upward in price, underpinned by appreciating land values and owner occupiers priced out of the house market.

Are You Thinking of Buying or Selling In 2021? Contact Greville Pabst today on 03 9589 3886.