What happened to Melbourne apartment values in February?

Melbourne apartment values bounced back from a decline across January, posting 0.1 per cent gains in February, CoreLogic's Monthly Hedonic Home Value Index showed.

The growth outstripped houses, which were flat across the month.

Apartment values across Melbourne rose seven per cent over 2021, which was the lowest growth across all major capitals, namely due to the extended lockdowns Victorian's faced.

Overseas arrivals and seasonal rental market strength have given a shot in the arm to the rental market, which has been more apparent in the unit market.

CoreLogic's Head of Research Tim Lawless says the stronger trend in unit rents is most visible in Sydney and Melbourne.

“Anecdotally, demand for unit rentals in these cities has been bolstered by a combination of worsening rental affordability deflecting more demand towards the higher density sector, where rents tend to be lower, and demand starting to return from overseas arrivals,” Lawless said.

With the pace of growth in housing values softening while rental growth holds reasonably firm, the gross yield profile has finally stabilised at 3.2%, the lowest rate on record. Sydney (2.4%) and Melbourne (2.8%), which have the lowest yield profiles, recorded a slight strengthening in gross yields this month, as rental growth nudges higher than growth in housing values.

Lawless believes we could be seeing rental yields moving through the bottom of their cycle.

“After several years of yield compression where gross rental yields reached historic lows across most of Australia’s capital cities, we are finally seeing early evidence of yield repair. If rents continue to rise faster than housing values, which is a strong possibility in Sydney and Melbourne, yields will continue to improve.

“Cities such as Brisbane and Adelaide, where housing values are still consistently rising faster than rents, are likely to see yields compress to new record lows.

"Despite the downwards trend, yields in these cities remain well above Sydney and Melbourne levels,” Lawless said.