Melbourne home prices rise in October, but banks gobble up most of the profits: PropTrack
Melbourne house prices continue to recover, gaining more than $5000 in the past year — but for many the boon has gone to their bank.
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Melbourne house prices continue to recover, gaining more than $5000 in the past year — but for many the boon has gone to their bank.
PropTrack’s latest Home Price Index released today shows the city’s $924,000 typical house value rose almost $2000 (0.2 per cent) in October alone.
It adds to a $5328 total across the past 12 months.
But consecutive interest rate hikes in the same period would have cost someone buying that median-priced home an extra $7500 on mortgage repayments than if the cash rate had plateaued last year, leading to an overall loss despite an increase in prices.
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Mortgage Choice broker David Thurmond said there was typically a two-month delay between the Reserve Bank increasing rates and when borrowers had to start paying extra as a result of their payment cycle and delays caused by bank decision making and informing customers.
A person who bought a typical Melbourne house a year ago would have paid about $918,500 based on PropTrack’s growth figures and their current automated valuation model value of $924,000.
Those who took out an 80 per cent loan on such a home would now pay an extra $1053 a month in interest rate payments after progressive increases raised the average standard variable rate to 6.94 per cent, equating to an additional $7500 in mortgage payments than what their initial rate would have entailed.
Mr Thurmond said buyers from a year ago would have seen their property’s value growth eaten up by increased rates, but this would only really hit those who sold their home.
“It won’t be a factor if you are selling your property in another 20 years,” he said.
PropTrack senior economist Eleanor Creagh said the Home Price Index showed that the month-on-month price growth was the result of recent record prices across many Melbourne markets, in addition to an increase in listings and auction activity in October.
“Demand remains strong so prices are continuing to move higher and the upturn is certainly entrenched,” Ms Creagh said.
“We’re seeing population growth rebounding strongly and the shortage of new home builds has also continued.”
Melbourne’s median unit price gained $6014 in the past year to hit $626,000, PropTrack data shows.
But with the cost to service a typical mortgage rising above median price gains in the past 12 months, Property Investment Professionals of Australia (PIPA) chair Nicola McDougall said more investors would be looking to sell up in the coming months.
It comes after PIPA’s latest market report revealed investor activity had dropped significantly since the first series of rate rises last May, falling nationally by more than 27 per cent.
“Even in an environment where property prices may be increasing, investors still need the available cash flow to be able to manage much higher mortgage repayments, which have dwarfed rental increases over the past 18 months,” Ms McDougall said.
“As well as rising interest rates making it difficult for some investors to hold onto their properties, investors have also been selling in significant numbers in the past three years because of higher government property taxes making investment properties less attractive, as well as changing tenancy legislation also increasing their compliance and holding costs.”
She added that the numbers “simply don’t add up” anymore for a large proportion of investors, with PIPA’s annual investor sentiment survey in August showing about 38 per cent of participants said they were likely to sell within the next year.
“With property prices again rising, it is highly possible that the exodus of investors will continue in the year ahead,” Ms McDougall said.
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