The Reserve Bank of Australia (RBA) Financial Stability Review (FSR), released earlier today, contains the below gem on the Melbourne housing market, which aligns with my overall view:
Although housing loan arrears rates are currently low across most parts of Victoria, the outlook for the Melbourne property market appears to be softer than for other large cities and some banks have signalled that they will be alert to any signs of deterioration in asset performance. The current stock of land for sale is at a high level and building approvals data point to increases in the stock of housing, and potential oversupply, in some parts of Melbourne, particularly the inner-city apartment market (Graph 3.20). This is on top of previous strong supply of detached housing in the outer suburbs. The increase in the stock of housing is consistent with Melbourne dwelling prices declining further and recovering less of their earlier decline than prices in most other capital cities have done.
I am not surprised by the RBA’s assessment. Despite recent price growth, outer-Melbourne land supply remains highly elevated at a time when new house sales are tracking near 16-year lows. The apartment market also appears to be in oversupply, with the recent spate of approvals by the Victorian planning minister, Matthew Guy, likely to add to this glut. Moreover, the Victorian economy has weakened recently, with state final demand recording three consecutive quarters of negative growth.
Advertisement
In short, downside risks remain high in spite of the recent strong price growth and improving auction market.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
