Melbourne’s sliding property market shows signs of recovery

Melbourne’s property downturn is showing signs of stabilising after house prices fell just 0.5 per cent, or by $5017, in the March quarter.

Melbourne recorded a median house price of $1,023,116 in the March quarter, the latest Domain House Price Report, released on Thursday shows. Experts said Melbourne’s house prices might have reached a floor, but this would not be confirmed for months, and downside risks remained.

Six months ago prices were falling at the steepest pace on record, but buyers are increasingly confident the cycle of interest rate rises is close to an end.

Melbourne’s median house price is now 6.5 per cent below the peak it reached in December 2021, but is still 16.1 per cent higher than before the pandemic-induced property boom.

Domain’s chief of research and economics Dr Nicola Powell said she could not say for certain that Melbourne’s house prices had bottomed out, but there were signs.

Prices were recovering in some expensive parts of the city, including the Mornington Peninsula, where they rose 5.8 per cent to a median $950,000. They were also up in the exclusive inner east, by 4.9 per cent to $1.75 million.

“We normally see the more expensive areas lead the price falls and then the recovery,” Powell said. “This could very well be the bottom of the market, but we need another couple of quarters of sideways movement of prices, or slight improvements, before that is confirmed.”

That was likely, as buyer confidence was returning, especially after interest rates paused in April, and there might be only one more rise before the end of the year.

“I think we’re close to a peak interest rate,” Powell said. “We’ll probably only see one more. That will help to improve buyer sentiment and the outlook of the market.

“Having 10 interest rate rises in a row muddies the waters as to what buyers’ borrowing capacity is.”

While house prices were down slightly, unit prices took a harder hit over the three months to March, down 4.8 per cent to a $527,828 median.

House prices in Melbourne are stabilising, pointing to the bottom of the market, some experts say.Credit: Eddie Jim

Unit prices fell hardest in the Mornington Peninsula – down 11.9 per cent over the quarter – bucking the upwards trend of house prices there.

Westpac senior economist Matthew Hassan called the unit decline a “cautionary tale”.

“The market is very thin at the moment,” Hassan said. “There is maybe more urgency in getting sales out the door for some of these units.”

He believed Melbourne’s market was bottoming out, but there were still risks ahead, with another interest rate rise expected in May.

Westpac’s updated forecasts are tipping Melbourne’s house prices to fall just 1 per cent this year, rather the then 10 per cent previously expected, as high levels of migration and fewer homes for sale keep the market stable.

Prices are expected to rise 5 per cent next year, as interest rates are cut.

ANZ also updated its forecast on Wednesday, predicting a 10 per cent fall, peak to trough in Melbourne, with prices expected to rise 1 per cent by the end of the year. That was a change from the 16 per cent fall that had been expected in January.

ANZ senior economist Adelaide Timbrell expects only one more interest rate rise this year, saying headwinds for the market would include diminishing borrowing capacity.

“We don’t expect the cash rate to start falling until late 2024, which means the impacts to borrowing capacity so far from [higher] interest rates are likely to remain in place,” Timbrell said.

There are fewer homes for sale across Melbourne, hitting buyers such as Damien Lui, his wife Cindy and his children Jasmine and Jobe.

The family sold their Carnegie home this month before auction, receiving an offer right on reserve. They plan to move closer to schools in the east of the city, but have been struggling to buy.

The Lui family has been looking for a home in the eastern suburbs to be closer to school for their children.Credit: Simon Schluter

“We’re finding it hard in the pockets we’re looking at because it’s quite slow in terms of new housing stock,” Damien Lui said. “When we were selling there was not that much stock being released, so that helped us in getting the price we wanted as well.”

Lui, an architect, said he had been watching the market, and hadn’t felt stressed about selling, even in a downturn. He had revamped and redesigned his home, and knew fully renovated turnkey properties were selling well.

“We’re still keeping an eye on the market. Especially now if prices start going up we don’t want to be priced out,” Lui said.

Their selling agent, Ray White Carnegie partner Tom Grieve, said home buyers were searching for turnkey homes, especially given the recent collapse of major building companies.

Vendors were also still holding out, waiting for the market price falls to stop before listing, he said.

“I think what a lot of people are doing is waiting for signs of the market stabilising, and they may list in spring,” Grieve said. “That could mean there is an oversupply issue later in the year.”