It’s safe to say that the COVID-19 pandemic turned the Victorian housing market upside down. While the property market in Melbourne took the biggest hit, regional parts of the state experienced an unexpected surge. Now that restrictions have eased, and 2020 is drawing to a close, how will the Victorian real estate market fare?
Topics in this article:
How is Melbourne’s property market?
Melbourne property values
Despite economists’ predictions that house prices would fall by 20% back in March, the property market in Melbourne is recovering better than expected.
Months of stage four restrictions to stop the spread of coronavirus held back Melbourne’s market from recovering as quickly as the rest of the nation, and this is reflected in its lower house price growth than most other capital cities. In November, Melbourne’s property market experienced a slight increase in home prices growing by about 0.7% – a promising sign.
A further indicator that the market is bouncing back is that Melbourne was the only capital city that recorded an increase in property listings in November, with 1.2% more listings than the previous month. This was most likely due to the return of in-person inspections and auctions as Melbourne reopened, increasing buyer sentiment and giving sellers the confidence to list their homes.
The easing of restrictions has flipped Melbourne’s property market from a buyer’s market to a seller’s one. Pent-up buyer demand means more people are looking to buy than the available housing stock. If demand continues to exceed the supply, house prices will likely continue to rise into early 2021.
We anticipate high buyer demand to continue well into the new year, with the Victorian government slashing stamp duty by 50% on new builds and 25% on existing homes as of November 25 until June 30, 2021, to stimulate the property market. This paired with low interest rates will see many buyers rushing to secure their dream homes before the June 30 cut off.
Melbourne rental market
Melbourne’s rental market is beginning to recover. However, inner-city areas and the CBD took the biggest hits and will not likely bounce back as quickly as the surrounding outer suburbs.
Melbourne’s rental market is experiencing a 4.6% vacancy rate, the highest of any Australian capital. Increasing unemployment, office workers abandoning city living, the loss of international students and paused overseas migration have all contributed to Melbourne’s soaring vacancy rate.
Due to the oversupply of rental properties, Melbourne’s rental market is overflowing with opportunity. The average unit rental price is now $400 per week, down $50 from the pre-pandemic high of $450 per week. With this in mind, and the Victorian budget allocating funds to help tenants stay in their homes, it’s not a bad time to be a renter.
We suspect Melbourne’s rental vacancies will remain high until international borders reopen allowing the return of migrants and international students to reoccupy a large chunk of Melbourne’s rental properties.
Rental prices may even fall further as landlords compete to attract tenants during the busiest season in the rental market throughout January and February 2021.
For Victorian renters that are doing it tough, the Victorian Budget 2020/21 has allocated $80 million to assist tenants facing financial hardship.
How is regional Victoria’s property market?
Regional Victoria property values
When the pandemic hit, thousands of Melburnians flocked from the CBD and travelled outwards in search of more space and housing affordability. Regional Victoria has been reaping the housing market rewards ever since.
This internal migration was fuelled by the spread of the virus, the rise in working from home culture, and the need to live a more cost-effective lifestyle. When people were either being put out of work or forced into remote learning, regional living became an appealing and safer option for many Melburnians.
According to CoreLogic data, regional Victorian house prices had a monthly growth rate (+1.3% in November) about double that seen in metro Melbourne (+0.7% in November). If this trend continues, regional VIC property values may exceed pre-pandemic levels in 2021.
Victorian regional hotspots for internal migration that recorded the strongest property price growth included North West VIC (Mildura, Swan Hill, Ouyen), Ballarat, Geelong and Bendigo.
We expect this tree and sea change trend will continue into the new year and even post-pandemic, as many employers will continue to offer flexible work arrangements and cut down on city office space.
So, we can expect high demand for regional properties and additional price growth in 2021 as Melbourne employees move outwards opting to work from home, striving for better work-life balance and the various lifestyle advantages of regional Victorian locations.
Regional Victoria rental market
The Victorian regional rental market also saw a surge as Melbourne renters fled from the city into regional areas to take advantage of more budget-friendly rental prices.
Consequently, regional Victoria recorded a vacancy rate of 1.2%, down from 1.4% the previous month, and an average weekly median rent of $360.
Internal migration has spurred one of the biggest surges in rental prices in regional Victoria in the past decade. Regional locations account for almost three-quarters of the top 20 Victorian suburbs with the largest rental price increases over the past six months.
While internal migration has been on the rise in recent years, the pandemic has magnified it. Agents in popular regional hubs like Castlemaine and Warrnambool say demand has skyrocketed and competition has been fierce for rentals since the pandemic hit.
While Melbourne has seen high rental vacancies, regional rental portfolios are filled to the brim. So, if you’re considering a tree change, you’d better act sooner rather than later before regional rental prices rise further in 2021 as Victorian’s work habits and lifestyle priorities evolve.
Will house prices crash in 2021?
It’s unlikely. Victoria’s housing market is one of the fundamental driving forces behind the state’s economy. Plus, the newly released Victorian State Budget 2020/2021 has a heavy focus on supercharging Victoria’s property market.
The delivery of the historic $5.3 billion Big Housing Build will set the tone for economic recovery amidst job creation and the construction of 12,000 new homes over the next four years.
Plus, The Victorian Homebuyer Fund will provide $500 million to unlock more affordable housing and help accelerate more Victorians into homeownership sooner.
It’ll take a little more time compared to the rest of the nation, but 2021 is looking like the beginning of a robust comeback for the VIC real estate market for the most part.
What is the prediction for house prices?
With national house prices rising, Victoria will most likely follow suit. It’s hard to say precisely when the market will make its comeback, but based on Victorian real estate historical trends and recent data, 2021 will welcome a healthy but gradual rise in house prices.
Those who are still employed and are in a position to buy may be able to take advantage of the Victorian Budget 2020/21 initiatives, HomeBuilder grants and historically low interest rates over the coming months.
The unexpected resilience of the property market means that house prices will more than likely rise over the next 12 months – but by how much remains uncertain.
Some experts are forecasting Melbourne house price growth in the realm of two to six per cent, and others even anticipate growth between eight and 12 per cent in 2021.
House prices will most likely continue to rebound upwards as interstate migration returns and even more, when international borders are allowed to reopen once there is a COVID-19 vaccine.
Suppose you’re thinking of selling in the new year. In that case, a property valuation will provide you with a current market valuation to reflect the true worth of your property and how to optimise the return on investment. For assistance in the decision concerning purchasing or selling property in Victoria, seek out the Melbourne-based property valuation experts.
Undoubtedly, now that restrictions have eased the housing market in Melbourne and Victoria is on the mend and back on the rise. With a remerging market, we expect the end of 2020 will see an increase in home loan applications, strong auction clearance rates and accelerating buyer interest to transact before Christmas.
