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Peter Rogozik Property Consulting

Market snapshot- February 2019

Your Buyers Advocate Newsletter

The Melbourne market is currently at the bottom of a cycle. During these times quality investment grade property becomes easily identifiable. These are the properties that attract multiple bidders at auctions. Properties that don’t meet this performance indicator are invariably not investment grade.
During these downturns properties that are situated in secondary locations and/or well above the suburb median price are most susceptible to decline in value. 
Many people are under the impression that the Melbourne property market operates like share markets i.e. there are ongoing and regular cyclic peaks and troughs.
The Melbourne property market is less volatile than share markets. In a 10 year period we are likely to experience only one downturn. The greater majority of Melbourne residential properties are in appreciation mode most of the time albeit with varying degrees of intensity.  
During a downturn most properties lose value although a small percentage of investment grade properties hold their value.
During a normal cyclic downturn some property investors wait for the bottom of the market. However that so called bottom of the market does not apply to premium grade investment property.
A common question is “When is the best time to enter the market?” Investors should enter the property market when they are financially capable of servicing their loan including possible interest rate rises.
The important real estate fundamental of “what you buy”, is always more important than “when you buy”, should be adhered to.
In the December quarter, the Melbourne metropolitan median house price reduced by 3.4 per cent to $797,000. This represents an annual increase of 1.4 per cent.

Auction clearance rates for Victoria continue to hover around the 45 per cent mark. The rental vacancy rate in metro Melbourne is around 2.1 per cent  and 1.3 per cent in regional Victoria. These figures are below what is considered a balanced market i.e. 3 per cent.Following the Reserve Bank meeting in December 2018, the cash rate was left unchanged at 1.5 per cent, as it has been since August 2016. The standard variable rate remained at 5.35 per cent.

According to the RBA, the global economic expansion is continuing, although growth in China has slowed a little. The Australian economy is performing well. GDP growth is expected to average around 3.5 per cent this year before slowing in 2020 due to reduced growth in exports of resources. The outlook for the labour market remains positive. The unemployment rate is 5 per cent, the lowest in six years. Inflation remains low and stable. Over the past year, CPI inflation was 1.9 per cent. Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual.The Melbourne property market will remain subdued for at least the first half of 2019.The combination of a Federal election and the fall-out from the banking royal commission will play a major role in keeping a lid on activity.
Historically in Melbourne, activity in property markets reduces prior to a Federal election as people wait to see the result. Many people’s investment decisions are influenced by how they see the policies of the winning party impacting the property market.
The two key economic indicators that have most effect on the buoyancy of the Melbourne property market is the unemployment rate and monetary policy.

Both the unemployment rate and home loan interest rates are relatively low. While this remains the situation, the current downturn will continue to be only a normal cyclic adjustment.
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