City Beat: Melbourne unit market insights for February

The Melbourne unit market looks like it's following the upward swing in capital city property prices across the country.

The unit market, which incorporates apartments and townhouses, contracted -0.2 per cent over February, but that followed steep -1.1 per cent declines in January and -0.8 per cent in December.

Melbourne's unit market is now -2 per cent down so far in 2023, and 5.7 per cent over the last 12 months, the third worst performing capital city unit market behind Hobart (-10.1 per cent) and Sydney (-10 per cent).

The unit market in the Victorian capital has considerably outperformed the housing market over the last year. That's down -11.2 per cent, nearly double the unit market, after further -0.5 per cent declines over February.

Projects by Buxton Director Heath Thompson says the February rate increase has resulted in poor market sentiment from buyers, as well as decreased volume of enquiry.

"What was even more impactful was the commentary from the RBA around the rate announcement, suggesting multiple interest rates are likely to follow in the coming months," Thompson says.

There are some factors however which are pointing to a positive outlook, Thompson suggests.

"The market fundamentals have some blue sky on the supply and demand equation.

"Rents are increasing at speeds not seen in recent memory and new dwelling approvals are the lowest since 2012. New construction starts are showing even less supply is coming to the market.

"On the demand side, we see buyers with very little choice for established or new property, increasing immigration and significant lack of rental property to service growing demand."

According to data from Charter Keck Cramer, there were a total of 5,100 apartments launched to the market in 2022, the lowest number of launches recorded over the past decade and was almost -80 per cent lower than the peak levels during 2014 and 2015.

"In “normal markets” these conditions would see price rises which is what I’m expecting in the next 12-18 months, allowing more projects to absorb constructions costs and we will likely see a rapid rise in new development approvals and construction starts."

Thompson believes the bottom of the market can't be far off.

"The question we often get asked is “when is the market going to bottom out?” I don’t know the answer to that however, it can’t be far off and I do know that new projects will have to rise in value to become feasible.

"Rises in value are inevitable, its just a matter of when."

The median unit value in Melbourne is now $585,000, down from $626,000 this time last year.

CoreLogic's national index declined -0.14 per cent over February 2023, the smallest monthly fall since May 2022 (-0.13 per cent), when rate hikes commenced. 

CoreLogic’s research director, Tim Lawless, said the stabilisation in housing values over the month coincides with consistently low advertised supply levels and a rise in auction clearance rates.

“The past four weeks have seen the flow of new capital city listings tracking -17.0% lower than a year ago and -11.9% below the previous five-year average,” Lawless said.

“This trend towards a below average flow of new listings has been evident since September last year, coinciding with a loss of momentum in the rate of value decline.”

“The past four weeks have seen the flow of new capital city listings tracking -17 per cent lower than a year ago and -11.9 per cent below the previous five-year average,” Lawless added.

“This trend towards a below average flow of new listings has been evident since September last year, coinciding with a loss of momentum in the rate of value decline.”

Lawless however suggested the recent stronger results don't necessarily indicate the market has bottomed.

“Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic  performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived,” Lawless said.

“We also have the fixed-rate cliff ahead of us; arguably the full impact of the aggressive rate hiking cycle is yet to play out.”