Melbourne Housing Market Sluggish Yet Poised for Potential Recovery - Property Inc

Melbourne Housing Market Sluggish Yet Poised for Potential Recovery

Despite languishing behind other capital cities in Australia when it comes to housing value growth, Melbourne might be about to turn the corner. With a hint of a recovery in the horizon, Australia’s second largest city may be in a prime position to attract a greater share of housing market participants.

Melbourne housing values have increased by a mere 1.6% from the onset of COVID-19 in March 2020 to the end of May 2023, according to CoreLogic. In contrast, all other capital cities have witnessed double-digit growth, ranging from a 16.5% surge in Sydney to an impressive 45.2% in Adelaide. However, what may seem as a setback could serve as an affordability advantage for Melbourne.

Melbourne has historically been more affordable than Sydney, its primary competitor. As CoreLogic explains, “In March 2020, at the onset of COVID, Melbourne house values were 19.2% cheaper than Sydney’s.” This gap grew to 30.3% in April 2022, the largest divergence since May 2006. While it has narrowed a bit since then, Melbourne’s median house value still lags behind Sydney’s by 29.6%, or approximately $382,500, as of May 2023.

The underperformance of Melbourne’s housing market is attributed to several factors. These include a substantial drop in value during the early stages of COVID-19, a milder increase during the upswing, and a significant decline through the rate hiking cycle to date.

Melbourne’s housing market may be turning a corner, though. A new forecast from NAB predicts Melbourne home prices to surge more than $75,000 by the end of next year. According to NAB’s latest Residential Property Survey, there will be a 2% increase in property prices by the end of 2023, followed by a 7.4% rise across 2024.

Alan Oster, NAB Group’s Chief Economist, explains that strong immigration and the current state of interest rates are major factors driving this forecast. He mentions, “(There is) very strong immigration into Australia…It’s around 400,000 (people) this year, maybe a bit higher, whereas the average is normally about 180,000.”

However, an increase in housing stock could hinder this projected growth. Cameron Kusher, PropTrack’s Executive Manager of Economic Research, states, “If there is more stock on the market, if there’s more people wanting to sell, if there’s fewer buyers, then we could see potentially property prices starting to fall again.”

Although Melbourne’s housing market remains uncertain, there are encouraging signs of a potential recovery. Regardless, one thing is for sure – housing affordability, immigration rates, interest rates, and housing supply will play key roles in shaping Melbourne’s housing market in the coming months.

References:

(CoreLogic, “Melbourne gains a competitive advantage”) https://www.corelogic.com.au/news-research/news/2023/melbourne-gains-a-competitive-advantage 

(Sarah Petty, “Melbourne home prices forecast to surge 10 per cent in 18 months: NAB”) https://www.realestate.com.au/news/melbourne-home-prices-forecast-to-surge-10-per-cent-in-18-months-nab/ 

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