EXCLUSIVE: Has the Melbourne market plateaued?

There has been talk in the property sphere that the Melbourne market is running out of steam.

Melbourne has been the star performer in auction listings this spring, however its clearance rate is starting to dwindle, with three consecutive weeks below 70% now, according to RP Data.

Meanwhile, Sydney’s clearance rate is still staying afloat, with 74.9% recorded last week.

In the September quarter, Melbourne house prices grew to a new record, increasing by nearly 9% to $595,500, according to REIV.

With the end of the December quarter not too far away, Property Observer posed the question to industry experts on whether they thought the Melbourne market had plateaued.

Robert Larocca – Victoria housing market specialist with RP Data

YES, AFTER A YEAR OF GROWTH THE Melbourne MARKET HAS PLATEAUED

Recent evidence suggests that after a year of growth the Melbourne market has plateaued. The RP Data House price index showed growth of 8% in the year to October but that growth slowed in October and in the 4 weeks till last weekend it actually went down by 0.7%.

This is hardly a calamitous but when added to the fact that the clearance rate has been below 70% for each of the last three it suggests the earlier strong growth has slowed or plateaued.

Mitigating this is the strong auction volumes generated by confident vendors. Since the end of winter (and including this coming weekend) there have been just under 13,300 auctions in Melbourne, which is 35% more than the same time last year.

The apparent easing may not be a bad thing if the growth over the last year is more sustainable than previous cycles.

After all the last two upswings in the market, 2007 and 2009-10 were both rapid and followed by price reductions. This cycle is much more moderate and reflects the performance of the overall economy.

The release of the RP Data – Rismark House Price Indices for November on Monday will provide a clear answer about the market over the last month and whether Melbourne has fallen short of a new high in house prices.

Enzo Raimondo ­– Chief executive officer of Real Estate Institute of Victoria

WE MUST NOT TAKE THIS SEASONAL SLOW-DOWN AS A PLATEAUING IN THE MARKET

We do not agree that the market has plateaued. A plateau implies that the market is flat. It isn’t– it is still growing in terms of price and volume but it is starting to slow down in some indicators. This is not unusual – the market generally winds down over Christmas and is slow between December through to February. We mustn’t mistake this seasonal slow-down as a plateauing in the market as it is too early to tell.

In terms of price growth, Melbourne’s house price is still growing. The REIV house price index for November indicates that price growth is likely to be below last month’s increase of 2.3% but is still higher than the 0.6% increase this time last year.

In terms of transactions, we estimate that there were over 10,200 sales in Victoria in October which is the highest for the year. November is expected to exceed this figure so the number of transactions is still increasing although there will certainly be a seasonal drop in volumes in December through to February.

The number of auctions is still very high. We are forecasting around 1,500 auctions for the next three weeks. Although clearance rates have been trending down since the beginning of November the total number of sales remains high.

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Andrew Wilson - Senior economist for Australian Property Monitors

CLEARANCE RATES AND PRICE GROWTH ALREADY PEAKED THIS GROWTH CYCLE

The Melbourne housing market will record its best performance over 2013 since the heady days of 2009 and 2010. House prices are set to rise by around 7% over the year with most price ranges and suburban regions contributing to the solid outcome.

This result will be similar to the increases recorded in 2010 when house prices were up by 6.4% but well short of the 17.3% recorded in 2009 and the 21.1% increase of 2007.

Despite a solid result this year the Melbourne median house price is unlikely to exceed its previous price peak recorded in June 2010. And despite strong buyer activity in the prestige market this year that segment will certainly remain well short of its previous price peaks.

The nature of the Melbourne market this year as it has evolved has been as usual clearly signalled by activity levels in the weekend auction market. Auction clearance rate continue to be a reliable forward indicator of buyer activity and prices growth in the wider market and this year was no exception.

The Melbourne weekend auction clearance rate rose from the 60% average over the September quarter last year to average 70% over the September quarter this year. The Melbourne median house price has increased by 7% over the same period.

Recent indications are that buyer activity in the Melbourne housing market may be moderating, weighed under by a deluge of late season auction listings. Last weekend’s clearance rate of 70.3% was the lowest this spring with the monthly trend on the decline.

Record numbers of properties are set to go under the hammer in Melbourne over the final four weekends of the year with around 4,000 homes listed. Vendors will be keen to sell rather than wait until next year after the holiday break, particularly changeover sellers who have already purchased. With growing competition amongst sellers for a diminishing pool of buyers now starting to get the upper hand, auction clearance rates and prices growth have likely peaked in this growth cycle.

Angie Zigomanis - Senior manager residential with BIS Shrapnel

THE MARKET SUSPECTED TO FLATTEN OUT IN 2014

Commentary on the Melbourne housing market has centred on strong clearance rates and prices achieved at auction. However, auctions are concentrated in inner and middle Melbourne and not representative of the whole market. Low interest rates have had a larger impact here, where the population primarily works in industries with a relatively positive outlook, while some pent up upgrader demand arguably exists after weak activity in 2011 and 2012. This has driven current demand and given buyers confidence to bid up prices.

In contrast, outer Melbourne has been weaker. Compared to the year-to-June 2013 median house price rise of 7% and 6% in inner and middle Melbourne suburbs respectively, price growth in outer Melbourne was only 4%. Sales volumes have also not recovered to the same extent as in inner and middle Melbourne. As well as ample new housing supply in recent years, interest rate reductions have also had less of an effect, with much of the population in the outer suburbs concentrated in industry sectors that are under pressure, such as retail and manufacturing.

As a result, the recovery in Melbourne has not been broad based, and we suspect that the market will flatten out in 2014. The Victorian economy still faces headwinds, with employment growth likely to remain limited. There is also a substantial pipeline of new apartments in inner and middle Melbourne working their way through to completion. This will impact on vacancy rates, and while not necessarily competing directly with the housing sector, is likely to have flow on effects and reduce some of the impetus from buyers to push up prices—which may already be evident in the easing in auction clearance rates in recent weeks. Nevertheless, prices should not decline, with purchaser buying capacity supported by low interest rates.

Who's opinion would you like to hear? Contact ntrotman@propertyobserver.com.au.