Buyer pool grows as Melburnians seek extra space

5 min read

More Melburnians are making the decision to trade up to new and larger homes. The city-wide trend has implications for prospective vendors, who are dealing with a broader pool of buyers than would normally be the case.

Stepped-up competition between multiple buyers for the one property has been one of the key outcomes of the “race for space” that has flowed from lockdowns and pandemic restrictions.

Median house and apartment values across the capital cities jumped 19.2 per cent for the year to February, according to CoreLogic figures. It’s a strong growth rate that prompted many owners of high-quality and so-called “generational” homes to list their properties for sale.

The general trend to high-quality property listings in many coveted pockets of Melbourne is another driving factor that is working to drive up buyer enquiry and house inspection rates.

Nelson Alexander Director Arch Staver says after the exceptionally strong sales and price growth seen last year, he expected that buyer demand this year would dissipate or flatten out.

“But not only has demand not dissipated, what has occurred is that a lot of new buyers have come into the marketplace,” Mr Staver says.

“Our selling agents are meeting people who are not on our database, and that database is built up from the details of every person that inspects every home listed by Nelson Alexander.

“It has been a long while since we have had new buyers come into the market, so that’s something that has taken us by surprise in the early part of 2022.”

So, what level of buyer demand can vendors expect to see in the months ahead?

The chances are that the buyer pool for many homes will grow further.

Not only are vendors benefiting from a demand for more space at home and a preparedness by many people to spend larger amounts of money on their living arrangements, they are also set to benefit from a perception that “balance” is returning to the Melbourne market.

The most recent house price data from CoreLogic suggest that the heady rates of growth seen in 2021 are pulling back and the market is entering a balanced phase. This should only encourage additional buyers to search for properties.

CoreLogic’s national Home Value Index was up 0.7 per cent in March, a slight increase on the 0.6 per cent lift recorded in February. The uptick in the monthly rate of growth was primarily driven by stronger conditions in Brisbane, Adelaide, Perth and the ACT, along with several regional areas, offsetting a slip in values across Sydney and Melbourne.

The first quarter of the year has seen Australian dwelling values rise by 2.4 per cent, adding approximately $17,000 in value. A year ago, values were rising at more than double the current pace, up 5.8 per cent over the three months to March 2021 before the quarterly rate of growth peaked at 7.0 per cent over the three months ending May 2021.

Sydney’s growth rate is showing the most significant slowdown, falling from a peak of 9.3 per cent in the three months to May 2021, to 0.3 per cent in the first quarter of 2022. Melbourne’s housing market has seen the quarterly rate of growth slow from 5.8 per cent in April last year to just 0.1 per cent over the past three months.

CoreLogic’s research director, Tim Lawless, says while the monthly rate of growth was up among some cities and regions, there is mounting evidence that housing growth rates are losing momentum.

“Virtually every capital city and major rest of state region have moved through a peak in the trend rate of growth sometime last year or earlier this year,” Mr Lawless says.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.” Mr Staver says sellers who have owned properties for five years or more remain in the box seat when it comes to reaping gains on a sale.

He points out that Melbourne house prices tend to do one of two things: go up or tread water for a period before eventually rising again.

“If you go back five years, you can see how many property owners have benefited,” Mr Staver notes.

“Anyone who owned a property before 2017 would have enjoyed the benefits of the great spurt of 2017. Then we had the banking royal commission – that was the dip or the slowdown, but prices did not come crashing down. They simply plateaued for a period.

“At the moment, we are starting to see demand for apartments really coming back.

“While there is a lot of focus in the media on people making the great sea or tree change, our agents know there is a very large group of second or third-time homebuyers who want to remain living in the city. Many of these prospective buyers are now looking at apartments as an excellent value proposition.”

When listings increase, particularly of quality properties in coveted locations, it works to attract so-called “passive buyers” to the market. Passive buyers don’t actively attend open for inspections, they aren’t on agencies’ databases, nor do they want to be emailed about the latest property listings. But many are cashed up and ready to buy.

Mr Staver says passive buyers come onto the market when an appropriate house or apartment is listed for sale. Often it’s a large house on big land that draws in these buyers. “Very often a real estate agent may not know how many buyers are actually out there for that type of home,” Mr Staver says. “When the property comes on the market, it flushes out the passive buyer.

“It’s not just the pricier properties that attract these buyers,” Mr Staver notes. “People who are currently leasing will become buyers if they happen upon an interesting property. It could be in the immediate location that they are living in, or the property may be in a price range where the rent they’re currently paying will satisfy all the mortgage requirements.”

Mr Lawless says the annual growth trend will fall in the coming months, as the strong gains recorded in early 2021 drop out of the 12-month calculation.

National housing turnover is also easing, with preliminary transaction estimates for the March quarter tracking 14.3 per cent lower than the same period in 2021, but still 12.2 per cent above the previous five-year average.

“Nationally, the volume of housing sales is coming off record highs but there is some diversity across the capital cities in these figures as well. Our estimate of sales activity through the March quarter is 39 per cent lower than a year ago in Sydney and 27 per cent lower in Melbourne, while stronger markets like Brisbane and Adelaide have recorded a rise in sales over the same period.”

If you would like to discuss the selling environment in more detail, please contact any Nelson Alexander office.

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