Melbourne house prices rise most in two years to make surprise gain

Melbourne house prices have risen at the fastest pace in 2½ years as buyers take advantage of a window of opportunity to jump into the market.

After more than two years of stagnation, house prices in Melbourne rose by 1.7 per cent in three months to reach a median of $1,068,805, Domain’s House Price Report for the June quarter has revealed.

In contrast, unit prices experienced a decline of 1.7 per cent in the June quarter, as landlords sell given the higher land tax in Victoria.

Domain chief of research and economics Dr Nicola Powell said buyers had taken advantage of this period of steady prices to climb Melbourne’s property ladder, which had eventually contributed to house prices edging higher.

“It’s the strongest quarterly gain that we’ve seen in 2½ years,” Powell said.

“The fact that prices have gone sideways prior to this for 18 months, that provides great buying opportunities for anybody looking to break into the housing market or even upsize.

“It showcases that buyers are using those stagnant conditions that we have been seeing to make their move, and I think that’s what helped drive up that price growth this quarter.”

Melbourne’s south-east recorded the strongest rate of house price growth in the quarter, up 1.9 per cent to a median price of $795,000, while units in the same area rose 3.9 per cent.

In the north-west, house prices rose 1.4 per cent, while units in the region shot up 9 per cent in three months.

Powell said price growth in more affordable areas, including in the middle and outer suburbs, had helped drive up overall growth for Melbourne, whereas premium markets experienced minor price falls.

“It is very clear that there is still weakness at the upper end of the market. So the inner east, inner south, even the Mornington Peninsula, all of the house prices in those locations fell over the quarter,” Powell said. “It’s these more affordable locations that are seeing price growth.”

First home buyers Charlotte O’Malley, 28, and Harry Pepperell, 31, took advantage of Melbourne’s stagnant prices to purchase a townhouse for less than expected in McKinnon.

Harry Pepperell and Charlotte O’Malley, with dog Jesse, recently bought their first home in McKinnon.Credit: Simon Schluter

The couple, who were previously renting in Richmond, decided the time was right to escape the rental market and pull the trigger on buying their first home.

“The other option would have been to find another rental, and rental prices have gone up, so we would be paying almost exactly the same for a rental versus a mortgage,” O’Malley said.

“It was sort of like, why not try and do it now and actually be paying off our own mortgage as opposed to paying off somebody else’s.”

O’Malley, a secondary school teacher, and Pepperell, who works in marketing, moved back home with family for a few months to help save for a deposit. They meticulously researched suburbs and property types before successfully bidding on their new home at auction.

“We definitely thought that the house that we got was going to go for more, but I think we were just lucky on the day,” O’Malley said.

“We would have loved to live somewhere like Elsternwick or Elwood, but we knew that those price ranges were going to be a little bit out [of our budget].”

Westpac senior economist Matthew Hassan said while prices softened in some areas, buyers remain stretched when it came to affordability.

“I think we’re going to be stuck within this kind of constrained growth range for the Melbourne market,” he said.

“You’ve got tight markets in terms of the physical supply and demand that will continue to support prices around that level.”

Hassan said an easing of interest rates could provide some relief for buyers, but it was unlikely housing affordability would improve, causing many buyers to remain cautious.

“When you do get prices starting to lift, the lift runs out of steam quite quickly because buyers get priced out quite quickly. So we’re expecting the price performance to remain pretty subdued,” he said.

Entourage Finance managing director Damien Roylance said although quality homes were being snapped up quickly, an oversupply of apartments – fuelled by an uptick in investors selling – had contributed to an overall decline in Melbourne unit prices.

“Stock levels of apartments are much higher than what they were probably 12 months ago,” Roylance said.

“Once you lose the investors in the apartment market, you’ve got the first home buyers. They’ve generally been the two strongest forces buying apartments, and you’ve lost pretty much half of them.”

He said lower apartment prices provided more affordable opportunities for first home buyers, who have been struggling to break into the housing market.