‘Buyers are much more cautious’: Melbourne house prices in surprise fall

Melbourne’s median house price dropped 1.5 per cent over the first three months of 2024, extending a period of stagnation that began with modest price rises last year.

The city’s median house price fell to $1,032,000 over the March quarter, the latest Domain House Report, to be released on Wednesday, shows, but is 0.7 per cent higher than a year ago. The median unit price fell 1.3 per cent to $564,000.

“It’s an interesting dynamic that we’ve seen a deceleration of momentum across Melbourne’s housing market,” Domain head of research and economics Dr Nicola Powell said. “Melbourne has been facing a number of hurdles that are probably slowing down Melbourne’s housing recovery when compared to other capital cities.”

High interest rates and cuts to borrowing power were factors that contributed to the drop, along with a hangover of COVID-era demographic movements, investors selling ex-rental properties and a subsequent lack of desirable homes for sale.

Powell said negative net interstate migration and market weakness following Melbourne’s extended lockdowns had left its property market further behind than in other cities, which in turn disincentivised capital gains-focused investors and cut demand.

“You’ve also not got an established recovery in Melbourne. It changes peoples’ decisions to buy and sell. Vendors don’t want to sell unless they have to,” she said. “It can influence pricing cycles, too. Because Melbourne really hasn’t moved into an established recovery cycle. It says a lot about home owners and if they’re willing to sell.”

AMP chief economist Dr Shane Oliver agreed. “Melbourne’s continuing to be Melbourne,” Oliver said. “It didn’t do as well in the boom coming out of the pandemic. Here again, it’s lagging on the way up.

“Buyers are much more cautious. The best explanation is that it’s a hangover from the pandemic.”

Melbourne’s inner east, which includes suburbs such as Hawthorn and Kew, appeared to be leading the downturn over the March quarter; the median price in the area was down 2.9 per cent to $1.7 million. The north-east was the next weakest area; prices were down 1.9 per cent to a median house price of $775,000.

The median house price in inner Melbourne rose 3.5 per cent to $1.42 million, the strongest performance across the city.

Among units, inner Melbourne fell the most over the first three months of the year, as investors discouraged by higher mortgage costs and higher taxes listed properties for sale.

BigginScott agent Fraser Lack said the market was becoming one for buyers, but it was harder to balance the expectations of both buyers and sellers.

“Buyers have become incredibly picky with what’s out there,” Lack said. “A few years ago when things were booming, I had people showing up to auctions and bidding on things they hadn’t actually seen. It was madness.

“Now, people are saying, ‘I don’t know Frase, it’s only ticking nine out of 10 boxes, I’m not sure about this one’.”

Serena Zlatnik just bought her first home because she didn’t want to brave the rental market. Credit: Jason South

Lack said stagnant prices and high rents were pushing first home buyers to make the leap into the property market.

“I have buyers who say, ‘I’ve moved three times in five years. I’m over it’,” he said. “A lot of tenants are fed up with that lack of security.”

One such tenant was Serena Zlatnik, who recently bought a renovated villa unit through Lack, having felt forced to buy after being told she’d have to leave her unit and brave the crisis-gripped rental market. She had lived in the apartment for 10 years.

“I would not want to brave [the rental market], no way,” she said. “Not since [my friend] had 100 knockbacks. It was time to buy.

Zlatnik said it had been difficult finding a home for sale that she wanted to live in.Credit: Jason South

“I just don’t have the time or the patience for that.”

Zlatnik struggled to find something she was interested in buying; she said many of the properties for sale appeared to be ex-rentals that she didn’t feel comfortable purchasing.

“There’s lots of newer builds that were like a shoebox with a window on each end, and I just couldn’t live like that. I didn’t want to smell [my neighbours’] cooking or hear their bathing habits.”

Zlatnik said the few homes for sale meant house prices would not continue to decline.

“I don’t think it will stay down. I think there’s a huge crisis happening,” she said. “If they decided to pull down the commission flats, what happens then?

“That’s the thing, [previously] you could actually be picky. But I don’t think that’s the case now ... You have to settle for whatever you can get.”

Entourage Property director of property advisory Antoinette Sagaria said the difficulty in finding well-kept homes for sale was slowing the market.

“Theoretically, it should be a buyers’ market, but it’s not necessarily. One of the biggest reasons is, if you look at what makes up the current stock on market, it’s not aligned with what buyers want,” she said. “Out of COVID, people want more space and something that’s turnkey.

“A lot of people are selling old investor stock which would be a property that’s been leased for the last 10 to 20 years that may require works ... If you look online, there seems to be more types of those properties than the turnkey homes that are in demand.”

With Tawar Razaghi