Victoria property market outlook (Source QBE)...

Melbourne House Market

Melbourne house prices increased by 69% over the five-and-a-half years to December 2017, although prices have recently started to retreat. Strong population growth, a dwelling deficiency and falling interest rates have been key drivers of this upturn, with solid economic conditions and employment growth maintaining a positive purchaser sentiment.


Melbourne Unit Market

The median unit price across Melbourne hasn’t grown as strongly as the median house price in recent years, with the unit market facing a significant volume of new supply relative to the housing market. While house prices increased by around 69% over the five-and-a-half years to December 2017, unit prices increased by 27%. Over the first half of 2018, unit prices have fallen back slightly by 1.2%


Demand and supply

Demand for new dwellings has been strong in Victoria. Over the three years to June 2018, the total population has grown by an average of 144,660 persons per annum. The level of population increase has been 21% higher than in New South Wales over the same period. Victoria is estimated to have experienced record levels of underlying demand in 2017/18, with both high net overseas and interstate migration inflows contributing to demand. Robust demand for property has led to a strong supply response. Total house commencements are expected to reach a record level by the end of 2017/18, at around 38,300 starts – a similar level to the previous peak in 2009/10.

Outlook

Weaker investor demand and the easing in non-first home buyer demand appears to be having an influence on the Melbourne market. With affordability already strained in Melbourne, the recent out-of-cycle increase in interest rates is also likely to have some impact on demand. By the June quarter in 2019, the median house price is expected to fall to $820,000, which is around 8.4% lower than the December 2017 quarter median. Population growth is expected to slow over the next three years. This will suppress construction activity and contribute to restrained price growth. Once the stock deficiency starts to rise from 2020/21, house prices are also expected to start rising. Economic growth is also forecast to accelerate as further new dwelling activity is triggered and business investment begins to improve after being subdued. Continuing affordability challenges means that any upturn is likely to be modest, and by the end of 2020/21, the median house price is expected to remain lower than the median price as at June 2018.


Bottom line

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Disclaimer
Contents of this message are of general nature only and should not be relied upon solely when making financial and/or investment decision..