Property prices in Melbourne skyrockets to record levels in December quarter
- Posted By Prince Lakshman
The Melbourne property market has bounced back massively with prices soaring to set new record levels even surpassing pre-pandemic levels.
Currently, the median house price sits at $936,073 with a 5.3 per cent increase in the last quarter of 2020, outperforming the previous record high of $907,600 that was achieved in the March quarter before the COVID-19 lockdowns were imposed.The median for unit prices also rose by 4.4 per cent overall to a median of $569,677, which is $14,000 higher than the record set in 2019.
The performance of the property market now is a far cry from the predictions made last year when house prices were projected to fall, with a worst case scenario forecasting as much as 30 per cent drop in Melbourne as the pandemic happened and the population was forced into lockdown.
The year 2020 was a test to the resilience and adaptability of the Melbourne property market. During the year, all of Melbourne’s property market was done online. Furthermore, public auctions and open for inspections were banned for months. Private one-on-one inspections were mandated to prevent the spread of the coronavirus. The entire market also experienced another blow when it was shut down from August to October as Melbourne dealt with a second wave of COVID-19.
Nevertheless, for Domain senior research analyst Nicola Powell, the stringent restrictions became one of the key reasons Melbourne’s property market performed great at the last quarter of 2020.
“It really did have an effect on buyer activity,” Dr Powell said. “There was lots of pent-up demand captured in the December quarter.”
The upswing in prices had also been aided by record low interest rates, government grants and incentives for home buyers, as well as fewer listings, which saw more competition push prices higher, she said.
Westpac chief economist Bill Evans believes that while incentives had assisted in stimulating the market, they were not what was driving prices up.
“It’s interest rates, not government policy,” Mr Evans said. “[Government incentives] are not causing house prices to rise.”
But Grattan Institute program director for household finances Brendan Coates said government incentives were distorting the housing market, bringing forward construction and pushing prices up.
“We know from past experience that when you give money to home purchasers a lot of it gets passed through into higher house prices,” he said.
“Whatever you make of those efforts to stimulate construction, they are not effective housing affordability measures.
He noted Reserve Bank research that found lower interest rates push house prices up.
“These concessions just add further fuel to the fire, which is why a lot of forecasters are expecting house price growth of 10 per cent to 15 per cent growth over the next couple of years.”
MP Capital chief economist Shane Oliver said the incentives were “a distortion, but it’s a justifiable one”.
“The low interest rates mean a positive background but it was the [government] measures that made people buy,” he said.
“JobKeeper and the bank payment holiday kept people in the market – people who would have defaulted on their mortgage.
“The First Home Loan Deposit Scheme enabled first-time borrowers to get into the market a lot faster than they would have.
“Normally in a recession interest rates come down and people lose their jobs and are forced to sell their homes but that was all headed off by government incentives.
“This is yet again a missed opportunity for buyers to get a more affordable property.”
The Reserve Bank would be observing Australia’s level of household debt and how new lending standards, which will make it easier for people to get a mortgage, would come about in the property market with rates likely to go up in 2022.