Melbourne real estate: how far can post-lockdown boom go?

It is no secret that the word on the street is that property prices are booming in Australia, but is this the case for Victoria and specifically Melbourne? 

It appears that Australia’s big four banks are predicting a further rise in property prices in 2021 between 7 and 16.2% and that this will continue into 2022. 

Alanah Frost from realestate.com.au (REA Group 2021) has written an article (see below), which addresses the question we all want to know… how far will the boom go?

Article: Melbourne real estate: how far can post-lockdown boom go?

Melbourne’s “runaway” property market won’t stop until pent-up demand from COVID lockdowns has subsided and interest rates increase, property insiders predict.

And although the winter months may ease some of the excitement, house prices are tipped to continue rising until the end of the year, and well into 2022.

“Melbourne’s property market is like a runaway train and people are trying to jump on and catch it before it speeds away,” Advantage Property Consulting director Frank Valentic said.

“Most suburbs have gone up, recovered and gone beyond where they were before COVID hit.

“In the last six to seven months, we’ve seen about 20% growth (across suburbs) on average and I think there’s still a fair bit of petrol in the tank.”

A combination of cashed-up owner-occupiers who halted plans to buy during the state’s widespread lockdowns, and low interest rates, were fuelling the red-hot market, Mr Valentic said.

“That will slow down now they’ve had a chance to get into the market … and I think (as a result) there will be a natural levelling out over the next quarter,” he said.

“But there are always more buyers in spring, so I can’t see it really going into a decline period until interest rates start to move again, likely in 2024.”

Melbourne’s median house sale price surpassed $1m for the first time in the first three months of 2021, after a staggering 8.8% quarterly increase, according to the Real Estate Institute of Victoria.

Australia’s big-four banks — NAB, ANZ, Commonwealth and Westpac — have each predicted Melbourne home prices to rise by between 7 and 16.2 per cent by the end of 2021.

NAB Group chief economist Alan Oster warned if the pace of property prices continued at an exuberant rate, regulators such as the Australian Prudential Regulation Authority (APRA) may “look at control to try and slow it down a bit” — but not yet.

“It’s not as if over a two-year period house prices are up 20% — they’ve regained their losses and we can see them going a bit further,” he said.

“Where we are, we’re back to the level of the previous (pre-COVID) peak.”

Finder’s head of consumer research, Graham Cooke, went further to say the Reserve Bank would likely “take a step back” this year. But “this doesn’t mean banks won’t raise interest rates”, he said.

“The last time we had a stagnant rate between 2016 and 2019, we saw banks move their rates seven times, five of which were increases,” Mr Cooke said.

Hotspotting founder and property analyst Terry Ryder, in his latest report, said Melbourne had “proven its resilience once again with the strength of its rebound” and named Greater Geelong, Melton and the Mornington Peninsula as among the top performers for price growth.

HOW FAR CAN THE MARKET GO?

Property price forecast, 2021

• NAB, 16.2 per cent
• ANZ, 16 per cent
• Westpac, 12 per cent
• Commonwealth Bank, 7 per cent

Key market predictions

• rising market likely to continue for the rest of 2021 and into 2022
• prices and demand won’t subside until interest rates increase, clearance rates decline and the number of people at inspections reduces
• COVID vaccine rollout and the reintroduction of migration and international travel could see another spike
• a slight drop could occur in Winter but is likely to pick up again by spring