More signs of weakness appear in the Melbourne market even as auction clearance rates remain healthy.
The Melbourne growth story that has the whole country captivated appears to be faltering as evidenced by the latest data from Residex.
During the month of June, the median house price grew by a paltry 0.40% to $584,500. This is in sharp contrast with the upbeat performance of Sydney, which saw median house prices climb by nearly 3%. It’s also significantly lower than Canberra’s 1.20% growth or Adelaide
’s 1.07% capital gain. During the June quarter, Melbourne house prices rose by 3.89% – again, slower than Sydney’s 5.63% growth.
However, while Melbourne’s recent performance is less than stellar compared to its earlier showing, its 12-month growth remains the highest at 18.73%, ahead of Sydney’s 17.17%. Residex estimates this growth rate would have generated around $92,000 added equity on average for Melbourne homeowners.
The rental market remains sluggish; however, rental yields are still the lowest in Australia thanks to the recent spike in house prices.
Land sales tumble
Residential land sales fell sharply in the March quarter; however, the median land price remains strong, according to the HIA-RP Data report. During the three months ending March, the median residential land value in Melbourne climbed 4.1% to $182,000 compared to the previous quarter, and 14.1% higher than the March quarter of 2009.
“It was disappointing to see land sales dropping by a staggering 71.1% in the March 2010 quarter compared with the same quarter in 2009,” says Tim Lawless, Rpdata.com national research director. “The half-year result was also very weak, with land sales 60.3% lower in the six months to March 2010 compared with the same period a year earlier. “The alarm bells are well and truly ringing for the Melbourne residential land market. After four consecutive quarters of substantial declines in land sales volumes, and simultaneous increases in the median land value, the prospects for a sustainably high level of building activity in 2011 and beyond are starting to wane.”
The report also showed all Victorian non-metro areas recording contractions in residential land sales over the March 2010 quarter compared with the same quarter in 2009, with the exception of a decisive gain in East Gippsland.
“The downturn in land sales activity has been evident for at least three quarters and suggests an emerging weakness in what has recently been a very strong new home building market,” says Lawless.
“The interest rate rise in March, which followed monthly increases over the December quarter last year, certainly dampened market conditions, particularly among the first homebuyer and low income segments of the market. “The continued weakness in vacant land sales is a bit of a worry considering the ongoing demand for housing remains high. The low volumes of land sales suggest continued price sensitivity from the market and further housing pressures ahead.”
Lawless doesn’t expect any material improvement in land sales over the June quarter either. “Considering the rate rises in April and May, lower consumer confidence and lower housing finance commitments over the June quarter, we don’t expect any real improvements in the vacant land figures soon.”
While Melbourne’s property market has lost its shine, the Victorian economy remains solid and is certainly performing better than NSW.
In the latest CommSec economic rankings, Victoria took the fifth spot largely because historically high population growth is generating strong housing demand and construction. Victoria took the third position in terms of equipment investment spending with investment up 49% above ‘normal’ levels. Record high dwelling commencements in the March quarter pushed Victoria to the second spot for this category.
CommSec says that not only are starts at historically high levels, but they are up 39% a year ago. “Strong population growth is the key factor under-pinning dwelling activity in Victoria. Population growth currently stands at 2.13%,” it says.
Areas to watch
In Victoria, Century 21 expects to see strong growth in areas that are in close proximity to both the city of Melbourne as well as the bay. “Areas considered suitable as ‘sea change’ destinations should, or continue to, exhibit above-average growth,” says Charles Tarbey, owner and chairman of Century 21. “As with NSW, Victoria’s Baby Boomer population is close to retirement age and will soon be looking for areas that deliver new and enhanced lifestyles, and allow them to cash in on the difference in value between their new and old homes.”
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