Melbourne Analysis Shows Growth Markets

Posted on 5/02/2019  
Melbourne Analysis Shows Growth Markets

The key feature of the Melbourne market is the strength of prices in many areas. That may surprise readers, because media keeps telling us that Melbourne house prices are down 8% or 9% in annual terms, implying that values are falling across the city.

But that is far from the truth. Our suburb-by-suburb survey of Melbourne shows that there are more suburbs with strong price rises than those with major decline in the past year. In fact, there are 81 suburbs where median prices have increased by more than 10% in the past year.

This highlights the reality that figures published by media on prices in our major markets mislead more than they inform and usually tell us nothing that’s useful about property market.

In this article, I use Melbourne to illustrate the point about media misinformation on real estate prices and their movements, up or down.

Research sources like CoreLogic and Domain claim Melbourne house prices are down about 8-9% in annual terms, but other major entities such as, the ABS and SQM Research put the annual decline at about 2%, while the Real Estate Institute of Victoria claims prices rose slightly in 2018.

It should be remembered that the various research sources produce one figure to describe Melbourne price movements - an ambitious undertaking, given that the Melbourne metro area has over 500 suburbs, as diverse as Toorak versus Melton and Richmond versus Epping.

How can you distil the myriad transactions in these many diverse markets into a single figure?

Whether Melbourne prices overall are rising a little or falling a little or falling a lot, the single figure describing the level of annual change disguises many different scenarios.

Our suburb-by-suburb survey, using CoreLogic data, puts all this into some kind of perspective,

We can find no evidence in the suburb-by-suburb analysis to support claims that Melbourne prices are down 8% or 9%. If that was the average or median situation for Melbourne, I would expect to find perhaps 200 suburbs with annual price decline of 8% or more.

But nothing of the sort is seen in the CoreLogic data. There are far more suburbs with solid to strong annual price growth than there are suburbs with major declines in their median prices. I can find only 31 suburbs with annual decline of 5% or more – but 142 suburbs with annual growth of 5% or more – plus 77 where the median price has grown between 1% and 5% in annual terms.

Of the 142 with growth of 5%-plus, a total of 81 have recorded double-digit growth in the past year (i.e. above 10%).

And, of those 142 suburbs, 93 recorded growth in the most recent quarter (which means prices are still rising), while another 25 had recorded no change in the latest quarter (which suggests prices are not falling in those suburbs).

There are many suburbs where the median price has dropped a few percent in the past 12 months, but only 31 with big price drops. And those 31 locations are all million-dollar median suburbs, although some now have median house prices below $1 million following the recent decline.

Note that not all suburbs make the list, because we exclude locations with fewer than 30 annual sales – samples that small produce unreliable median price data and that results in rubbery figures which mislead more than they inform.

Here’s the thing: most of those with the major reductions are top end locations – the millionaire suburbs. Some of them have dropped a lot – and that may be dragging down the overall position in the data from some sources.

For example, Melbourne’s most expensive suburb Toorak has recorded a 32% decrease in its median house price (but it’s still close to $3.5 million). St Kilda has also dropped 32% and its median house price is now down to $900,000. Those are the extreme examples.

More mainstream are the Caulfield suburbs, all with median house prices between $1.3 million and $1.8 million, following annual decreases of 11% (Caulfield), 10% (Caulfield East), 5% (Caulfield South) and 20% (Caulfield North).

Brighton’s median is down 14% to $1.41 million and Canterbury has dropped 9% to $2.64 million. Hawthorn is down 19% to $1.72 million and Armadale has dropped 18% to $1.74 million.

Others with double-digit annual decreases include Box Hill, Clayton, Fitzroy, Flemington, Parkville and South Melbourne.

But these high-end suburbs with sharp decreases in median prices are relatively few. Far more common are Melbourne suburbs with big rises in the past 12 months. Some of these are millionaire suburbs (like Beaumaris, Black Rock, Eltham, Essendon, Ivanhoe East, Middle Park and Surrey Hills) but most are the cheaper areas.

The short summary is: the Top End has fallen a lot, the Middle Market has held firm or dropped a little, while the cheaper end of the market (mostly the outer ring suburbs) are still rising – and some of them are rising strongly.

Of the 142 suburbs with 5%-plus growth, 88 have median house prices below $700,000.

Regions with multiple suburbs with solid to strong price growth include the LGAs of Brimbank, Hume, Casey, Melton, Frankston, Whittlesea and Wyndham. The Mornington Peninsula also features prominently. In other words, it’s mostly the outer-ring areas which are still delivering strong price growth.

Those with annual growth above 20% include Bittern on the Mornington Peninsula ($630,000), Campbellfield in Hume LGA ($570,000), Clyde North in Casey ($590,000), Crib Point in Casey ($555,000), Dallas in Hume ($490,000), Whittlesea in the LGA of the same name ($570,000) and Keilor in Brimbank ($900,000).

In the Melton LGA, Brookfield ($490,000), Melton North ($415,000), Harkness ($480,000), Kurunjang ($440,000) and Melton West ($450,000) all recorded annual growth above 20%.

The pattern is that most of the locations with big price growth are at the cheaper end of the Melbourne market.

So clearly there are many locations across Melbourne where house prices are still rising, including where the growth is high.

It illustrates just how misleading it is to try to encapsulate prices in a major city in a single figure, especially when five different research sources provide five contrasting figures on what’s happening with prices – some saying they rising, others that they’re falling a little and still other claiming major decline.



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