Why Melbourne property prices will plummet

CoreLogic’s head of research, Eliza Owen, has done a good job explaining why Melbourne dwelling values are falling at a much faster pace than the rest of the nation:

Melbourne has so far seen the largest cumulative declines in property values since March (3.5%). This was led by a 5.2% decline across the Inner East region.

As has been explored in recent weeks, the steeper decline across the Melbourne market is two-fold. Cyclically, Melbourne property is subject to more volatile growth rates, and is also presenting strong declines off the back of very high growth rates through the previous upswing. Structurally, there has been an enormous demand shock to the Melbourne property market with the closure of international borders, where Melbourne previously had the highest level of net overseas migration of the capital city markets.

This is similar to the Sydney housing market, which received the second highest volume of net interstate migrants over 2018-19.

Victoria has also seen the largest decline in payroll jobs of the states and territories, according to ABS data…

Looking forward, there are a variety of factors that will influence the outlook for home values. Of immediate concern is the steepening curve of the virus in Victoria. Considering Victoria accounts for around one quarter of the nation’s economy, the stagefour lockdown has already dampened both consumer and business sentiment nationally and the interruption to economic activity will deepen and lengthen Australia’s recession. Cities where labour markets are more impacted are also likely to under-perform, as will those with more significant exposure to overseas migration as a source of housing demand.

As federal government fiscal support moves from around $18 billion per month to around $3 billion from October, housing market conditions will be tested more broadly; this is when we are likely to see a rise in the number of households facing financial distress and a lift in urgent sales. The expiry of mortgage repayment holidays is another downside factor for the market. Pre-COVID, mortgage arrears remained around 1% of the mortgage book, but with unemployment expected to reach 10%, along with less fiscal support and an expectation that mortgagors taking a repayment holiday will need to face up to their debts by April next year, it’s reasonable to expect a sharp rise in mortgage arrears which could see a lift in distressed properties hitting the market…

The outlook for both the economy and housing markets remains extremely uncertain, but risk remains skewed to the downside.

The explosion of COVID-19 cases across Melbourne and the city’s harsh lockdown will cripple spending and likely send a large number of businesses to the wall, driving up unemployment, shrinking household income, and causing a large number of loan defaults.

Melbourne’s economy is also most heavily reliant on immigration, which has virtually stopped.

Melbourne’s property market was already heavily overvalued in the lead-up to COVID-19. Now it faces a steep correction as fundamentals deteriorate.

Leith van Onselen
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Comments

  1. I should add that large scale overseas migration has displaced many locals (from Melb and Syd) to other parts of the country so they are losing that lot too.

    • Must be millions of Ozzie Battlers just beside themselves with jealousy and angst at the loss of the chance to personally experience the joys and pleasures of a Mediterranean climate in good old Oz!

      Bugger paying those international airfares when you can sit in freezing laneways and drink overprced wog coffee while catching WuFlu (with the Melbourne essence stirred in)!

  2. BoomToBustMEMBER

    Some further interesting thoughts and statistics:
    Melbourne has the highest population density: Melb: 453 person per km2 – Syd: 400 person per km2
    Victoria has the highest population density: Vic: 23.54 person per km2 – NSW: 8.64 person per km2

    Victoria also has a Melbourne centric focus, very little goes on outside Melbourne and most the population is crammed into the metro area, where as the smart money has always been to distribute the population and build larger cities to take the load out and create more opportunities, but nope, we have created a slum known as Melbourne that is easily locked down.

    This is for declared residents only, how many illegals are going to complete the census data??

    Stat’s obtained here: http://www.population.net.au/

    • How many residents, illegal or otherwise, even complete it on account of a) couldn’t GAF or b) don’t speak the local language so wouldn’t have a clue anyway.

    • I’m sure all the visa overstayers, including the perpetually ‘visiting’ death stare grannies, get included.

  3. The Shakespearean tragedy of Daniel Andrews. Too young, to remember or to know, that mass migration and mass outsourcing, enrich the “right” and smash the “left”.

    • TailorTrashMEMBER

      Soon enough he will be old enough to join the other labor grandees in feeding off China money

    • In a previous era, most migrants voted Labor, now most are from India and Asia who are more inclined to vote LNP on account of it promising to spend less on social and physical infrastructure and allow them to get rich quicker. On the whole the new migrants are far less civic minded and are extremely family orientated to the point that other people are not their problem. They dont see the intrinsic racism of the LNP nor do they even care about the misogynistic nature of them as it fits in with their own views. Just an observation and not a slur on the character of these immigrants, many of them I have been happy to work with and even prefer as neigbours in comparison to many bogans but the cultural differences are more inclined to right wing viewpoints.

  4. I don’t wish COVID on anyone. But what I do wish is a catastrophic housing bust. I say this on behalf of my children.
    Greed needs to end.
    Housing should be a right not a wealth creation tool.
    If we want future generations to hold on to aspiration, then let’s encourage that not quash it via self-interest.
    Boomers…..I’m talking to you predominantly. Self-interest.

    It is way past time we considered our children’s futures.

    Put a million tonnes of TNT under the property market, and throw in all the “sell-out” real-estate agents as well.

    • A housing bust would be the only silver lining to the current plague. I say this as a boomer who owns a modest house in one of the cheaper areas. Most boomers in fact dont own investment properties, a handful own lots and I will gladly see them financially burn and that includes relatives of mine who have despised my negative opinion of property speculation. You also have to realise that the investment property mania is now much bigger in the portfolios of gen X and in fact out does the boomers by many miles. Lots of gen Y too, the mania is huge and a long way to go before they see that the boom may not be coming back after more than a generation of price rises. As far as Im concerned it has never been an real investment, only a very cynical government sponsored scam/scheme to help the rich get richer. Nothing to do with providing housing either.

  5. Jeez you guys are polite this week Complimenting both Joye and now CoreiLogic. And yesterday, Kohler with MMT.
    Hope you are not joining the establishment!