Present and Future of Melbourne's Housing Market

Present and Future of Melbourne's Housing Market


Because of an increase in interest rates which have been a response to Australia's inflation issue, it has been increasingly difficult to enter the current housing market during these uncertain times. This has been reflected by property values in Melbourne decreasing by -5.6% from the February peak this year. However, this decrease is only cyclical and the rate of decrease has already begun to slow down in recent months. According to inflation forecasts, it is expected that interest rates will peak during December 2022 at 3.1% and slowly decrease to around 2.6% by November 2023 according to the Commonwealth Bank of Australia (these figures are subject to change).

Although this creates challenges for some buyers, house prices will become more affordable in the short-term with the latest property clearance rate in Melbourne being only 59% in comparison to the annual 86% clearance rate, reflecting lower demand. This current supply surplus gives buyers more power and leverage when it comes to house prices. However, this downwards price trend is only temporary and part of a market cycle. Due to the resilience of the housing market, when inflation and interest rates slowly stabilise, the market will again, go into a period of growth which would greatly outweigh the current falls in property value. Looking back at the most recent Melbourne housing market cycle, house prices fell to around -2% growth, however they recovered in the growth period and prices grew by over 20%. This historical evidence implies that although house prices are currently decreasing, growth is inevitable and these current lower prices create opportunity for long-term investors .

It is also worth noting that because a lot of buyers are more hesitant to buy homes. More and more Melbournians are turning to rent as a substitute. With an increase in demand for rental properties, the rental market is growing at a fast rate while vacancy rates are very low. In the next 12 months, rents are expected to increase by 3.5%, as a result of higher interest rates.

As Australia recovers from the pandemic, the future outlook of Melbourne's housing market and the wider economy is very positive. By 2050, Melbourne's population will have increased by around 3 million, according to state government plans. Therefore, by next decade, Melbourne will overtake Sydney and become Australia's largest city. Demand for real estate will increase to accommodate for Melbourne's growth. This means that in the long-term, the value of real estate will greatly increase, making it a safe, steady investment.

Overall, there are current inflation issues and uncertainties, the long-term outlook of the housing market of Melbourne is positive and full of opportunity.



-----This article is prepared by Justin Yan