aaron-campbell March 14, 2019
Low-end Melbourne property is becoming even more affordable and first-time home buyers celebrate!

What was once impervious to the decline in Melbourne property markets for several months, the low-end and affordable housing has finally joined the rest of the state as it heads into a downturn.

What was causing prices to increase for the cheapest homes in the weakened market (swelling first-home buyer needs) has ceased to be a factor as credit restrictions become tighter and demand is lessened. The nine-month growth stint against the rest of the market trend is gradually coming to an end.

Looking at the lowermost 25% of sales in the figure below from Domain, an annual price growth of 5.3% is apparent in the fourth quarter of 2019, specifically the month of September. Come the December quarter though, we see a .09% decrease for the same section, which has a median price of $580,000.

As for the other 75% of home sales, the story isn’t as bright for the median value of $1.026 million reflects a harder hit portion of the market. This price group recorded a 1.7% fall in the September quarter, accelerating to a 10.8% fall in the December quarter.

Senior research analyst at Domain, Nicola Powell, explains that further declines you see are likely in both segments of the market.

She goes on to state that “We are seeing a more broad-spectrum downturn across Melbourne. It was focused on the upper end but ow we’re seeing all regions and price points fall. Until we see signals that lending clamps will be loosened, the market will continue to fall.”

Other members of the market agree with Powell. Daniel Gladwell, an associate director of property at ANZ, points out that the downturn can be attributed to the credit restrictions across the entire market.

“What’s interesting now is the divergence is still there, but the gap in what’s happening there is narrowing,” he said.

“The difference being it’s now really negative and not very negative instead of slightly positive and slightly negative. It shows the credit tightening is affecting everyone.”

Gradwell believes the trickle-down effect had just taken more time for the lower end of the property market to see the impact of the stiffer credit requirements, as they had lower debt-to-income ratios in comparison to more affluent home owners.

Once again, Powell and Gradwell are on the same page. In agreement Powell stated “What we have tended to see historically is that the top end leads in price growth but also in downturns as well. When you see a new initiative come into play, you get an influx of new people trying to take advantage of the incentives.”

Powell is referring to the stamp duty concession and grant initiative for first-time home buyers. It was a boon from the state government to encourage enough buying to retain a floor under prices for most of the downturn.

Powell also said that even though prices looked to be declining across the city, the prices for entry-level buyers were obstinately robust. But once the demand ceased, this change did as well.

“They were still facing rising prices until only recently and even though it’s only a minor fall, it’s good news because affordability has improved marginally. That was the hurdle. At the entry level prices were continuing to grow,” she said.

In addition, Gradwell points out that as the amount of first-time home buyers gradually decreased, the value of their loans did as well.

“The average loan size has pulled back a little and that has impacted on prices,” he said.

There may be a silver lining to all that though, according to Danni Hunter, the chief executive for the Urban Development Institute of Australian Victorian division. She states, “This lowest quartile is imperative to ensuring there are more accessible points in the market for buyers with less access to capital.” In other words, the fall in prices was a joyful update for cash-strapped buyers.

She goes on to say, “These prices have only just started to decline, or some would ay correct, and are a good indication of what people buying that product can afford in this financial climate.”

Back to Top