Melbourne ‘Standout Performer’ For First Quarter

Source: Reinis Traidas via Flickr

A clearance rate of 71 per cent has been recorded this weekend, which is quite a jump from last week’s revised 65 per cent – though some results are still pending.

The latest median house data from Australian Property Monitors has indicated a 3.6 per cent rise for Melbourne’s median house price over the quarter, taking it to $538,922. Considering most economists had tipped Melbourne as a weak market due to inflated levels of housing supply, the unexpected rise left APM senior economist Andrew Wilson heralding Melbourne as the ‘standout performer’ ahead of Sydney, which, for the same period, recorded a modest 1.7 per cent rise (recording a median house price of $673,681 – a new record.)

APM’s median unit price ended the quarter lower – rising a modest 1.7 per cent to end up at $402,197.

Whilst Melbourne lags in its year on year result, rising 3.7 per cent behind Sydney’s more robust 4.2 per cent, Wilson notes “This is the best performance by the Melbourne housing market since the March quarter of 2010.”

It’s important not to fall into an inaccurate assumption that an increase in median data equates to an equivalent dollar-by-dollar rise in individual house prices. All data providers collate their information using differing formulas, and whilst a rise or fall in any one quarter can be useful as a trend indicator, the individual buyer will gain scant insight in relation to their own purchase.

The median results have largely been driven by a broad base increase in activity, rather than a significant hike in individual prices (which as mentioned last week, the REIV has in excess of 8 per cent if we’re to take the median as a bench market for such analysis.) Notwithstanding, the heightened demand is producing a greater proportion of sales under the hammer, with results typically 3–5 per cent above reserve.

Yesterday, the Victoria Government announced an end to the first home owners grant for existing homes in favour of a larger $10,000 grant (due to be launched on July 1st) for new properties under $750,000.

First time buyers wishing to purchase existing accommodation will instead benefit from an increase in stamp duty savings from 30-40 per cent, which has been fast-tracked to buffer any downturn from the $7000 withdrawal. Whether this will be effective is debatable.

When New South Wales and Queensland stripped their first home buyer grant for existing homes, demand from this sector dropped considerably – after all, it’s well known most prefer existing accommodation to new.

Property in some respects acts like a flow chart – money is fed into the bottom of the pyramid to allow home buyers wanting to upgrade, a leg up into their next purchase. Therefore, as seen previously, when hand outs are intermittently introduced or increased, it invariably has a price multiplier effect across all brackets of the market.

It’s no secret first time buyers have been suffering of late.  We can argue matters affordability with passion, citing old concerns that many have inflated expectations or an unwillingness to move into cheaper markets; however, what cannot be argued is the widening gap between existing owners and initial buyers, which has slipped to the lowest seasonally adjusted level since March 2004. At present, the bottom end of the established market is broadly underpinned by the investment sector and unlikely to change hands any time soon.

It would be foolish to assume the new grant or the reduction to stamp duty costs for one sector has anything to do with easing affordability. Rather the intention is to provide a much needed boost to the construction industry – which, as indicated by the RBA, is expected to fill the gap from falling profits in our transition to the post-peak mining age. 

In the near term, the Victorian Government are no doubt hoping it will significantly assist in soaking up the oversupply of new accommodation – high rise dwellings in the inner metropolitan region. Such a plan worked during the GFC when the home buyer boost in 2008/2009 was gifted. However, once the grant was retracted, demand – along with prices and turnover – fell dramatically.

Assuming first time buyers don’t want to spend the next 20 years (+) in their initial purchase, all acquisitions need to have some element of investment in the equation. Therefore, whether they will be savvy enough to steer clear of lower grade properties unlikely to gain much in capital, is behaviour all will watch with interest.

Next week the REIV expect around 740 auctions.