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Melbourne House Price Falls

As we enter the uncertainty of the start of interest rate rises, a Federal election and international warfare concerns, bouncing off higher-than-expected inflation figures last week, Melbourne’s property prices have been predicted to fall harder over the next eighteen months than first predicted.

We’ve experienced the sharpest annual gains in inflation since 2000, with a 5.1 per cent jump for the year, and 2.1 per cent for the March quarter. The Reserve Bank has increased the interest rates by 0.25% taking the official interest rates to 0.35%, the highest it’s been since March 2000.

This will leave many who entered the property market over the pandemic in an unprecedented state, especially those with variable interest loans, or the 2-year fixed loans that are about to expire. However, Australia is only following suit, as countries like New Zealand, the United States, the United Kingdom, Canada, South Africa, Singapore and South Korea had already put up their interest rates in the past month, as we strive to a sense of post-Covid normality.

Historically, Melbourne house price falls usually begin around six months after an interest rate increase, however this time it’s different. In the March 2022 House Price Report by Domain, Melbourne’s house prices fell by 0.7% and units by 2.2% from the previous quarter, the steepest decline for units since June 2017. Domain reported that house prices fell in every region of Melbourne apart from the Inner East and West, and units on the Mornington Peninsula. They reported that Melbourne’s inner and inner south had some of the more significant declines over the March quarter.

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If we take a suburb-by-suburb approach, the suburbs Besser and Co service have no method to the changing dynamic of the median prices. At one end, Toorak has seen a whopping 35.1 percent decline in prices for the last quarter, whereas neighbouring Malvern has seen a 22.2 percent increase in prices over the quarter. St Kilda has seen a 11.3 percent reduction in median prices, yet St Kilda East has grown by six percent. Caulfield North and Caulfield South down 13.2 and 10.4 percent respectively, yet Caulfield has grown 13.7 percent. Prahran and Windsor have grown 9.4 percent and six percent, whereas South Yarra’s property prices have fallen by 28.4 percent. Balaclava up 11.4 percent, Elsternwick down five percent. Malvern East up 4.1 percent, Carnegie down 5.6 percent. And while Toorak has seen a steep decline, Brighton has gained 15.2 percent in median price over the last quarter. There really is no justification why some suburbs are still making great increases, yet some have seen their peaks.

Of course, each quarter is characterised by landmark properties, varying amounts and types of apartments and units for sale, the number or lack of family homes available and opportunities for development. For instance, these figures suggest that there were a higher number of apartments and units for sale in the last quarter in Toorak than there were established family homes in the previous quarter, and conversely the opposite for Brighton. We just have to analyse the following quarter to see if the pattern continues or if some stabilization in these affluent suburbs will follow.

However, as the January to March 2022 quarterly figures are concerning, April 2022’s figures are actually showing some stabilisation, as Melbourne house prices fell only 0.2 percent, and unit prices actually went up 0.4 per cent, making the annual change on house prices for Melbourne 10.1 percent up, and units enjoying an increase of 4.7 percent.

But let’s look closer at the sub-regions of Melbourne, as Melbourne’s Inner suburbs saw an auction rate clearance of 53% on the Anzac Day weekend, the lowest of all regions, where the Inner East saw a clearance rate of 59.7% and the Inner South saw 61.8%. These percentages are dangerously hanging into the edge of hitting a buyer’s market.

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Agents agree that we are seeing a significant shift from the power of the seller to the power of the buyer, as more properties become available, and less buyers to buy them. This gives buyers choice, and ‘choice’ means they can name their price. Melbourne has recorded an 8.2 per cent increase on the 5-year average of property available, which gives more reason for property prices to start to fall, and buyers an opportunity to negotiate price and terms.

As the downturn starts, it’s hard for sellers to fathom that they are on this edge of change in the market, so they protest loudly with their refusal of respectable offers. As the market changes, they will be kicking themselves for not taking that initial offer, instead they option to remain in a declining market.

With the new interest rate hikes, this will also see borrowers being able to borrow less than what they were initially pre-approved, meaning, that motivated sellers should take any respectable offer they possibly can in this current uncertainty, rather than think that they are strategically timing a sale that results in a peak price. The reality is… the peak has gone.

How will the market pan out for the rest of 2022? Those who have already sold and not yet bought will be laughing, those who have bought and not yet sold will be nervous. First home buyers will be concerned with interest rate rises, but this will also be balanced out with price decreases giving them a chance to enter the market. All in all, home owners and investors need to remember that property is not a commodity that should be bought and sold at its peaks and troughs, it’s about timing it for your lifestyle needs and for the long term. So, while you might need to put your hand deeper into your pocket with the interest rate increases, know that over the last couple of years, you’ve made some great profits in your home equity, so any minor falls can be discounted as a win.