The Melbourne median house price increased by just over 20 per cent between 2009 and 2010, but buyers and sellers should not be expecting a repeat of this in 2011.
This substantial increase in the median was partly due to the recovery from the impact of the global financial crisis, which affected the market from October 2008 to March 2009, and partly due to price growth driven by low interest rates, government assistance and increased demand from an expanding population.
As those conditions are not apparent this year, 2011 is shaping up to be a year of modest growth, due to higher house prices, higher interest rates and increased stock levels. At the same time, the Victorian economy is performing well and with high employment, buyers are confident of their prospects and are being more selective.
For buyers and sellers this means that researching the market is even more critical.
After all, house prices and the level of supply and demand are not the same in all suburbs and local conditions have an impact on local markets – for example, there was strong demand for homes at auction in the north east last year in suburbs such as Watsonia and Macleod, and if buyers looked only at the city-wide auction results they would have been unprepared for the high demand levels in those suburbs.
Buyers also need to appreciate some of the longer-term structural issues that the market faces.
In the first five years of the last decade, the median price of a house grew by 38 per cent; at the same time, 329,000 people were added to our population, while 226,000 homes were built.
By contrast, in the second half of the decade the population grew by 480,000 and the number of dwellings added was almost the same at 221,000. It should come as no surprise, then, that the median price of a house grew by 62 per cent over this time. That growth takes into account the 10–15 per cent drop caused by the GFC.
Thankfully, population growth has started to ease and dwelling construction rates have started to increase but it will be a long time before the deficit of homes created during 2005–2010 is fixed.
The effects of demand exceeding supply are equally felt in the rental market and this translates into stronger demand for properties in more affordable suburbs.
Finally, if you keep an eye on the auction market follow @REIVictoria on Twitter to get the results early Saturday evening.
Enzo Raimondo
CEO REIV
April 2011