Median House Price Melbourne
Chart above shows the median Melbourne house price over the last 15 years. We have also included changes in the RBA cash rate over the same period. The cash rate form the basis of mortgage rate set by the banks.
Melbourne property market has been in a bull run over the 15 year period with steady annual increases. The most recent leg of increase in house prices Melbourne seen can be directly correlated with the decline in the cash rate.
Melbourne Property Market
The Melbourne property market has been running hot since Reserve Bank of Australia reduced interest rates to record low. The under current of the headline booming Melbourne property prices is a story of two cities where house prices has boomed. Melbourne apartment prices is struggling at best.
Melbourne property prices like Sydney house prices while not in bubble levels but are stretched by any valuation measure. This include median house prices relative to earnings and overall pace of growth.
The building spree in Melbourne CBD apartments and docklands area has put pressure on Melbourne apartment prices relative to house prices. After all, as density increase, more apartments are built. But there is only a limited supply of land.
The value of apartments in Melbourne has been steady and even declining in some sub markets. There is a potential of limiting further supply crunch by capping towers to 24 levels. But it is already too late for the market today where the supply has exceeded demand.
Melbourne house prices has always traded at a discount to Sydney due to the geographic layout of the city. There is room for supply growth across 3 directions. Sydney population growth can only spread west.
The cause of increase in house prices Melbourne experienced can be attributed to the low interest rate environment, loose credit and inflow of capital supportive of new development. We feel that the party is near the peak and will be cautious of further price growth in the future.
Property prices Melbourne real estate investors pay today are dependent on the favourable conditions to continue going forward. We are more skeptical.
The recovery in the AUD to USD forecast the next step in interest rates is most likely to be up. Australian banks are more cautious on residential investment lending.
Melbourne Auction Results and Housing Service Cost
Weekend auction result today are hovering around 70% . While the decline in auction has not materialised, the froth has definitely left the market.
Chart below shows the relatively level of housing affordability in Melbourne verses Sydney and Brisbane. The data uses average median prices, earnings and 75% mortgage LVR. The chart shows how much individual income is used to service a mortgage. Brisbane is the lowest and Melbourne is not that much different. Sydney housing affordability is literally off the charts.
The key takeaway from above is that while Melbourne house and apartment prices are high on an absolute basis. The service cost is no where close to Sydney. This is because there is a abundance of land while Sydney is landlocked with the Pacific ocean on one side, and national parks to the north and south. The only avenue of growth is to the west.
Melbourne is fortunate that there is large swaths of area to sprawl too as well as building up. Just look at docklands. It is the availability of land the key driver in capping the lid on price growth.