Where Melbourne is pumping: Terry Ryder

Our prediction in 3-4 months ago about Melbourne overtaking Sydney has been confirmed by the latest price data.

In one of our November reports we noted: “Melbourne is the new star of Australia’s capital city property markets. It’s only a matter of time before Melbourne overtakes Sydney as the price growth leader in capital city Australia.”

We reported then that Melbourne continued to deliver a large number of growth markets, while Sydney was steadily waning. In Hotspotting’s latest survey for the Price Predictor Index, Melbourne continues to record strong sales activity, even though the number of rising suburbs is gradually diminishing. 

The number of Melbourne suburbs with rising sales trajectories in the past four quarterly surveys has been 134, 113, 110 and 105. This suggests Melbourne has passed its peak in terms of sales activity, but still has good impetus, while the price peak will probably come later in the year. 

The best of Melbourne’s precincts continue to be a mix of middle and outer-ring suburbs, with growing evidence that the previously-strong markets in the Top End near-city areas have subsided. 

Areas dominated by Top End suburbs – such as the LGAs of Glen Eira (BENTLEIGH, Caulfield, McKinnon), Boroondara (Balwyn, Ashburton, Glen Iris) and Stonnington (Armadale, Malvern, Prahran) – now have mostly Plateau markets, which are suburbs where sales activity has reached a peak and started to taper off at those levels or slightly lower levels (i.e. no longer rising). 

But there are numerous strong middle-market areas – notably the municipalities of Whitehorse (Box Hill, NUNAWADING, Blackburn), Banyule (Macleod, Montmorency, Watsonia), Moreland (the Brunswick and Pascoe Vale suburbs) and Bayside (Beaumaris, Black Rock, Hampton) – with significant numbers of growth suburbs. 

Whitehouse, previously a clear leader in the Melbourne market, has faded a little and is now matched by the LGAs of Banyule, Moreland and outer-ring Casey in terms of suburbs with rising trajectories. 

Other previous contenders Monash (Oakleigh, Mt Waverley, Clayton) and Knox (Wantirna, Boronia, Bayswater) have waned somewhat and, like Whitehorse, now have more Plateau markets than rising ones.

But there is now considerable energy in markets in the outer ring precincts. Locations likely to attract first-time buyers and others on smaller budgets are really pumping in Melbourne. 

In the far south-east, the Casey LGA (Cranbourne, Doveton, Endeavour Hills) matches those leading middle-market areas for the number of growth suburbs. 

Close behind are Brimbank (Sunshine, Deer Park, Cairnlea) in the western suburbs and Whittlesea (Epping, Thomastown, Mill Park) in the north of the metropolitan area. 

Market up-cycles often start in or near the city centre, with the millionaire suburbs the first to experience a rise in activity. As the cycle progresses, the growth ripples out to the middle-ring areas and latterly to the outer-ring suburbs. It’s common for the cheaper areas to have the greatest growth in the latter stages of the cycle, which often is in the third year of heightened activity. 

Sydney’s recent boom generally followed that pattern and Melbourne’s period of busy market activity (without producing the same high level of price growth across the whole city) has done likewise. 

So the evidence suggests that Melbourne is the leading capital city market - although it has passed or is close to its peak, depending on how you measure these things.

I note that the latest NAB Quarterly Residential Property Index finds that Victoria (read Melbourne) has replaced NSW (read Sydney) as the state with the most positive market sentiment and is currently the only state tracking above its long-term average. 

It’s also worth noting that Melbourne is Australia’s leading city for long-term capital growth (the average annual growth in prices over the past 10 years). 

Melbourne gets a lot of its impetus from population growth - it’s the leading capital city both for overseas migrants and for net inflow from interstate migration - and many of the leading suburbs for long-term capital growth are those that attract migrant buyers.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.