Bargains soon to be had in Melbourne

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After an outstanding year of growth, Melbourne prices appear to be finally cooling off as homeowners, under pressure from consecutive interest rate rises start selling.

The overheated market is the only capital city in Australia where house and land values have not fallen. Only recently have unit prices in lower cost suburbs started to decline. “In the last three years Melbourne house [prices] have increased by 42% and this translates into an increase in wealth for the average Melbournian of $172,000,” said John Edwards, CEO of Residex. Units have also recorded an equal percentage increase which has amounted to $132,000 in dollar terms.

Despite the city’s strong property prices, Edwards maintains that the upward trend has finally run out of steam. “Those who were going to be excessively stressed from the first group of [interest rate] increases have exited the market or will do so very shortly,” he said.

According to Edwards, this is creating an increase in stock, causing property prices to stabilise. “Our models are telling us that Melbourne like Sydney, about a decade ago, has arrived at the point of limited affordability. This causes house price growth to stagnate and grow at something slightly better than inflation and in some areas of the city to fall in real terms,” explains Edwards.
As interest rate rises put homeownership out of reach for many first home buyers, Edwards predicts that rent rates will increase. “There will be areas of the city that will do well. These areas will be the Suburbs that are well positioned close to the city and currently have a median value at close to or slightly less than the city median. Units that are older style and again well positioned will also do well,” he said.
It appears that Melbourne will soon be providing investors with new opportunities. “Melbourne is likely to be the most impacted as it returns to a more normal growth pattern and the last group of interest rate increases flows through to cause those who were stressed - but just making it - to sell. If you didn't purchase in Melbourne a year or two ago, in a few months time it will be time to go bargain hunting.”

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