Hot Melbourne suburbs where the property market is defying the downturn

A handful of popular Melbourne neighbourhoods are defying the property market downturn, and the city’s housing values are inching higher.

Owners hearing about price falls and interest rate hikes have been reluctant to sell their homes, and the few homes for sale are attracting more competition from buyers at open for inspections and auctions, sometimes selling for more than expected.

With more demand than supply, auction clearance rates in some neighbourhoods held between 70 per cent and 80 per cent in February, on Domain data, a level that indicates price rises.

Melbourne’s outer east recorded a 78 per cent auction clearance rate in February, while the inner east recorded a clearance rate of 75.5 per cent and the southeast region was 71.6 per cent.

The inner suburbs, inner south and north east all held above 60 per cent, the threshold that suggests a balanced market and steady prices. Domain research previously found Melbourne house prices edged up in the December quarter while units kept falling.

Separate figures from CoreLogic showed a 0.2 per cent lift in Melbourne dwelling values over the past four weeks amid lower than normal listing volumes.

Even so, the research house is not yet calling the bottom of the market and warned of the risk of further falls.

Interest rates may rise further, previous rate hikes are yet to take full effect, the economy is likely to weaken this year as unemployment rises and households spend their savings, for example.

In Melbourne’s outer east where the clearance rate was close to 80 per cent, quality properties that are renovated and have a good layout were attracting competition.

Barry Plant Heathmont and Ringwood auctioneer Marcus Lim said tight stock levels and buyer demand meant some homes were bucking the downward trend in recent times.

Some parts of Melbourne have seen a bump in prices despite interest rate rises.Credit: Justin McManus

“Renovated homes that have all the things they need done are flying out the door, especially family homes,” Lim said.

But it had become trickier to sell homes and rising interest rates meant some buyers were now looking for sales with a ‘subject to finance clause’ to ensure they could get a mortgage.

Fletchers Balwyn North’s Nick Fletcher said homes in the inner east region were likewise selling under competition over February and March - especially those where buyers weren’t forced to compromise.

“Good stock is still going really well, but compromised stock has to be priced to meet the market,” Fletcher said.

He said overseas buyers were coming back to the market, although not in the numbers agents had been expecting.

“We’re dealing with people that need to transact – those that have sold recently and need to buy or where their life circumstances have changed,” Fletcher said. “But I think post Easter it will be pretty tough.

“Another rate rise is going to make it tough, and I think we will see a bit of blood in the water,” he said. “Hopefully, we will hit the bottom in the next couple of months and stability will kick in when interest rates stop rising.”

AMP Capital chief economist Dr Shane Oliver said the improvement in results could be part of a bump that historically has been seen in down markets.

“Even during downturns it waxes and wanes,” Oliver said. “Prices can edge higher and then come off again. You could argue there’s an element of that now.”

“At the moment there’s an element of pent-up demand from people who have been bargain hunting, they’re motivated by falling prices,” Oliver said. “A tight rental market and returning migration could also be adding to the pickup in demand at a time of low supply.”

Oliver did not expect the price rises to continue, given the ongoing interest rate rises by the Reserve Bank.

Ten interest rate rises since May last year have already squeezed the amount that buyers can borrow and added thousands to mortgage repayments.

Some bank economists are predicting another two rate rises before they pause, adding even more pressure to the market. Oliver believes prices will fall between 15 per cent and 20 per cent peak to trough nationally.

He said he couldn’t rule out the possibility that prices had reached the bottom, but that it was unlikely.

“We can’t rule out completely that we have seen the low of the market, but it’s really dependent on the Reserve Bank and further interest rate rises,” Oliver said. “Historically, the single most important factor for house prices is interest rates, and we’re still a fair way away from lower rates at the moment. That’s what makes it [these rises] really confusing.”