While soaring prices have favoured existing property owners, current buyers risk paying a premium in a market that is poised to slow
Exuberant property buyers have continued to snap up any available property in Melbourne, seemingly undeterred by rising rates and sky-high prices. This lifted the median house value by 3.55% to $562,500 in the March quarter. On a year on year basis, values jumped by 17.71%. Units also continued to shoot upwards with the median value jumping by 5.04% to $432,500 in the three months to March.
“The Melbourne market performed more strongly in 2010 than we had expected,” admits Paul Braddick, head of property and financial systems research at ANZ. “We thought that rising interest rates and the exit of the first homebuyers would see prices decelerate and auction clearance rates start to come back a bit, but we haven’t seen any signs of that yet. The property market is clearly reacting to the strength of the Victorian economy and strong employment.”
The data from Australian Property Monitors (APM) shows an even stronger result, with the median house price surging by 27% in the year to March.
“It’s extraordinarily strong,” says Matthew Bell, economist with APM. “I hope it comes back because I don’t think it’s at a sustainable level at the moment. When we see growth of more than 20% on an annual level and quarterly growth at 6–7%, I don’t think that’s sustainable even though it’s driven by the top end. Melbourne is a place I wouldn’t be looking to buy with the expectations of the same level of capital growth.”
While this sort of growth is not unprecedented in Melbourne – values grew by 25% in 2003 – when Perth
experienced strong growth rates of 30% during the boom, its property market also fell heavier than the rest of the country when the cycle turned.
“I don’t think the growth rates are particularly good for anyone except those who bought at the bottom and sold at the top,” says Bell.
Angie Zigomanis, senior analyst with BIS Shrapnel, says that Melbourne is driven by confidence and, to a certain extent, irrational exuberance. ”A lot of people are going in because price growth has been strong but if you try and get into the market now, I suspect there’s not a lot of value left.”
Dazzling economic recovery fuels optimism
One of the reasons for the current buyers’ confidence is the stunning recovery in Victoria’s job market.
“Across most of the other states, employment in the last 12 months in trend terms grew by 1.5%; Victoria rose by nearly 4% so a lot of the growth we’re seeing in house prices are driven by the strength of the economy and the strength in underlying household income,” says Braddick.
The Access Economics report says that despite the negatives around manufacturing and commercial construction, as well as interest and exchange rates, Victoria’s recovery is increasingly robust.
“There are a bunch of reasons for [this robustness] but one is as simple as the pace of residential land release on the outskirts of Melbourne has meant that its housing construction gathered pace through 2009, while that in Queensland took a dive and that in NSW found record lows. In turn, the relative strength of the supply side of housing markets in the state is part of the reason why Victoria’s population gains – growth rates are currently the best in almost half a century – are still going up even though the pace of population growth has already peaked nationally. In fact housing construction, having already proved to be a Teflon-coated component of Victoria’s defence against the downturn, is more than maintaining its momentum into the upturn,” the report says.
The report also points to the fact that Victoria has been less heavy handed in its developer charges which resulted in more affordable land as well as better infrastructure on the outskirts of Melbourne.
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