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Outbreak highlights Melbourne’s fragile housing fundamentals

Covid likely to cool Melbourne’s residential property market ahead of other capital cities.

“It’s business as usual” in the Melbourne property market says The Agency’s Victorian general manager, Peter Kakos. Picture: Andrew Henshaw
“It’s business as usual” in the Melbourne property market says The Agency’s Victorian general manager, Peter Kakos. Picture: Andrew Henshaw

Melbourne’s residential property market looks likely to cool for winter ahead of other capital cities, with the latest coronavirus outbreak only placing further pressure on its fundamentals.

Last year’s four-month-long lockdown in response to the prolonged coronavirus outbreak ­restricted housing market operations and made it the last capital to begin its house price recovery.

Auction numbers have been strong and homes have sold at pace over the past six months, but Melbourne’s annualised gains of 2.2 per cent make it the worst-performing capital city in the nation and significantly behind the similar Sydney market (7.5 per cent in the year to April).

Archistar chief economist Andrew Wilson said the new Covid cluster added a “flavour of uncertainty” to the market ahead of the traditional winter slowdown of the housing sales.

“The next few days will tell the story. The market has underperformed compared to other cities, not hitting the spectacular highs other have experienced recently,” Dr Wilson said.

“It will accelerate what is happening already. The Melbourne market is already showing signs it is past its peak (in activity).”

Agents on the ground said it was business as usual at the ­moment, with sellers still locked in to sell over the coming four weeks. The Agency’s Victorian general manager, Peter Kakos, said it was more a case of “be alert, not alarmed”.

“It really just steps back into contact tracing, wearing masks,” Mr Kakos said. “Most people are very in tune with what needs to be done but are now acting in a more conscious way.

“Outbreaks didn’t really affect the market late last year or early this year.

“There is absolutely no reason this will impact demand. If ­anything, it might prolong the winter.”

Dr Wilson noted that auction numbers were still quite high and were setting May records. But buyers numbers were falling, which could be through fatigue or satisfaction.

But head of research at buyers agency Propertyology, Simon Pressley, said the latest cases only highlighted the underlying fragility of the Melbourne market post-Covid.

He has long held the belief that the buzzing activity at open homes and auctions currently observed at the coalface is little more than a couple of misleading metrics that act as a smokescreen for Melbourne’s fragile property market fundamentals.

“Melbourne’s weak economy, declining population, record high rental supply and the ratcheting-up of new housing construction are a collective group of fundamentals that are as weak as what Darwin and Perth saw throughout the last decade,” Mr Pressley said.

“Construction has always been integral to Melbourne’s economy. Stimulating this sector at a time when the population is effectively declining, and other economic factors are fragile, is not a recipe for property price growth.”

From January 2018 to May 2019, Melbourne suffered a property market downturn caused by the city’s overstimulated construction sector. Melbourne’s ­median house price declined by $134,000 over the period.

Mr Pressley compared the scars in the market caused by Melbourne’s long-term lockdown to those created in Perth by the end of the mining boom in 2014, which caused six years of depressed prices.

“Both economic events marked the beginning of a sharp reversal in migration patterns,” he said.

“The diminished housing demand is one thing, but the billions of lost revenue from those who left town, going on to spend their household budget elsewhere, has just as much impact on a city’s property market.”

Perth’s property values have only just returned to where they were 10 years ago.

Read related topics:Coronavirus
Mackenzie Scott

Mackenzie Scott is a property and general news reporter based in Brisbane. Prior to joining The Australian in 2018, she was the editorial coordinator at NewsMediaWorks, covering media and publishing, and editor at travel and lifestyle website Xplore Sydney.

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Original URL: https://www.theaustralian.com.au/business/property/outbreak-highlights-melbournes-fragile-housing-fundamentals/news-story/bf136bd870830133958599e5439415a1