Melbourne Residential Market 2015
January 22nd 2015 | , Urban Property Australia
While low interest rates have spurred new supply and prices, vacancy rates and rentals have yet to be impacted, although downward pressure is building.
Despite Australian households carrying record high household debt, historically low interest rates have resulted in dwelling prices continue to increase over 2014. Over the year, prices increased in all capital cities, however price growth remains subdued reflecting weaker housing price growth expected in 2015. Soft consumer confidence and continued uncertain economic conditions are also likely to weigh on buyer sentiment through 2015.
According to the REIV, Melbourne’s median house price has stabilised in the September 2014 quarter, however sought-after suburbs continued to increase in price.
Following the 2.1% growth in the previous quarter and the increase in auction numbers, the median house price remained steady at $649,000. The median apartment price was up slightly – 1.2% over the September quarter – to $503,000.
Price growth was variable across the city, according to buyer demand, with a number of suburbs seeing significant increases, especially Melbourne’s middle suburbs which resulted in a quarterly increase of 1.5% for house prices in the region up to $727,000.
Median House Price Growth
2015 median house price growth
Median Apartment Price Growth
2015 median apartment price growth
Low interest rates have not only driven housing prices higher, but also boosted housing construction levels. The low interest rates have cut the effective cost of housing, thereby making building or renovating more attractive than purchasing established homes. Victoria’s high population growth has further supported home building activity with Victoria’s population 1.8% higher than a year ago and 10.1% higher than the decade-average.
Recent building activity data released by the Australian Bureau of Statistics reveal that more dwellings were commenced in the September 2014 quarter than in any quarter since records began in the mid-1980s. Detached dwelling commencements increased by 0.8% in the September 2014 quarter, while ‘other dwelling’ (predominantly apartment developments) rebounded by 30.2%. In aggregate, the total number of dwellings commenced increased by 12.5% in the quarter to reach 52,380 – a new record. New South Wales, Victoria, Queensland and Western Australia, all recorded their strongest quarters on record for apartment dwelling commencements at the same time.
Looking even further ahead, the number of homes approved to be built has also hit an all-time high, helped by a surge in apartments and townhouses. Approvals for the construction of new homes rose 7.5% in November 2014, with 18,245 approvals granted, the highest monthly result since records began in the 1980s.
Within Victoria specifically, the state has been the strongest state in the home building approvals stakes for eight months. In November, the number of homes approved for construction rose 19.8%, an all-time high of 6,591.The strong level of construction and approvals granted indicate that there is a strong pipeline of residential construction activity ahead in 2015.
Housing finance softened in November, revealing slower growth in investor finance and sluggish owner occupier finance. While owner-occupier housing finance has been weak through 2014, investor lending was also soft in the final quarter of 2014.
The total number of loans for owner-occupiers (excluding refinancing) has now fallen in 11 out of the past 12 months and is now down by 0.8% over the year to November 2014.
By state, the number of loans to owner-occupiers fell in November in all states with the exception of Victoria, which increased by 0.6%. Finance to owner-occupiers for the construction of new dwellings is trending higher, increasing by 7.6% over year to November, and is now 30% higher over the last three years. The value of investor finance fell by 2.2% in November, but remains 13.0% higher over the 12 months to November 2014.
According to REIV, as at November 2014, the vacancy rate for Melbourne residential property rose to 3.2% – its highest level in 2014. It is now 10 basis points higher than its level a year ago.
The middle and outer suburbs also experienced increases in vacant space over the month to 1.9% and 3.4% respectively with new supply entering the market especially in outer Melbourne. Rates in the inner suburbs remained stable, although elevated, at 3.3% with the Inner (0-4km) region tightening slightly to 4.2%.
Increased dwelling construction and record activity by investors has failed to provide relief for tenants, with rents in most capitals remaining at or near record levels.
According to APM, national median weekly asking rents for houses increased by 0.6% while apartment rents increased by 0.1% over the quarter. Melbourne house rents remained steady at $380 per week over the quarter; however, apartment rents fell from $365 to $360 per week. Melbourne house rents were steady over 2014 while unit rents rose by 2.9%.