Melbourne remains one of the strongest capital city housing markets, despite an overall slowing of conditions in the national property markets over the quarter.
We’ve included the Melbourne property market video below, along with a transcript.
Welcome to CoreLogic’s Melbourne Property Market update for October 2017
In a demonstration of resilience, Melbourne dwelling values were almost 1% higher over the month and 2% higher over the September quarter.
Although the quarterly trending capital gains are more than halved from 4.4% over the three months ending November last year, Melbourne remains as one of the strongest capital city housing markets.
A rapid rate of population growth, strong jobs growth and less affordability pressures in Sydney are some of the key reasons why Melbourne dwelling values continue to trend higher.
The slowing in housing market conditions
The slowing in housing market conditions shouldn’t come as a surprise considering the recent history of dramatic capital gains across the Sydney and the Melbourne markets.
Since dwelling values started rising in 2012, Sydney values have surged by 75%, while Melbourne values are up by 57%. Macro prudential measures introduced by APRA at the end of 2014 and more recently in March of this year have played a key role in curbing the pace of appreciation, particularly in Sydney, where investment has been most concentrated. On the back of changed regulations, investors and interest-only borrowers now face a premium on their mortgage rates. Based on the data to the end of August, variable rate investment loans were typically attracting a 60 basis point premium.
While we expect growth rates to continue moderating, at least from a macro perspective, driven by Sydney and to a lesser extent Melbourne, there are likely to be other factors that will keep a floor under housing values. Housing demand fuelled by strong migration has risen during 2017 with the Australian Bureau of Statistics reporting the third highest net overseas migration result on record over the March quarter of 2017. Australia added more than 86,000 new residents from overseas over the quarter, most of which will contribute to demand for Australian housing. Almost 75% of these migrants arrived in New South Wales or in Victoria.
While investors are likely to scale back due to disincentives such as higher mortgage rates and low rental yields, first home buyers are a rising presence in the housing market. Based on July data, first time buyers reached their highest level since 2013. Stamp duty concessions that became available in July for first home buyers in New South Wales and in Victoria helped to push the numbers higher, but other states where incentives were unchanged also saw higher proportions of first home buyer activity. Additionally, mortgage rates are likely to remain close to historic lows. Although the cash rate may rise in 2018, the likelihood of a substantial lift in mortgage rates remains low, considering household debt levels are at record highs.
Overall, we’re expecting that growth rates will continue to moderate across the combined capital cities. However, the slowdown is likely to continue to be influenced by weaker conditions in Sydney and to a lesser extent in Melbourne. We’ll be tracking the movements in housing market conditions along with other key economic and demographic factors at www.corelogic.com.au.