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Melbourne’s median house price has risen to within $10,000 of its record high, reducing affordable options in a city that has led first home buyer participation.
The Victorian capital reached a median house price of $1,083,043 in the September quarter, up 2.2 per cent from June, the latest Domain House Price Report, released on Thursday, shows.
The median unit price in Melbourne is $12,000 from reaching a record high, hitting $590,597 by the end of September.
Domain’s chief of research and economics Dr Nicola Powell said first home buyers were particularly sensitive to changes in affordability, and had been the winners of “stagnating” prices in Melbourne in recent years after the last peak of $1,093,000 in December 2021.
“This has meant that first home buyers have been able to edge in,” she said. “Victoria has really led the way in first home buyer participation across the country.”
However, greater borrowing power due to three interest rate cuts this year from the Reserve Bank has pushed up prices, along with Melbourne’s “relative” value to other capitals.
“Melbourne was this middle city of affordability because of the underperformance of the housing market,” Powell said. “As a result, Melbourne’s value is extraordinary, and we’re expecting house prices to be fully recovered by the end of this year.”
The Australian Government 5% Deposit Scheme, which expanded in early October, was also likely to push prices up in the low to middle market, Powell said. Income caps have been removed, the number of places is now unlimited and property price caps have been increased to $950,000 in Melbourne.
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“It is going to increase property prices,” she said. “When you have a price cap on an incentive, you tend to find activity clusters as close to that cap as it can get.”
Powell said the increased price cap would also give buyers “more geographical choice” as houses in the pricier middle suburbs would now quality for the scheme. “Outer suburbs were already well covered with the previous cap … and now middle suburbia houses will also be captured,” she said.
By region, unit prices in the north-east rose most, up 7.1 per cent in three months to a median $605,000, followed by a 6.9 per cent rise in the outer east.
House prices in the north-east rose 2.9 per cent to a median $817,050 in the quarter, while the north-west gained 2.2 per cent.
Jas Stephens real estate agent John Galea, who represents Melbourne’s inner-west pocket, said homes “in that first home buyers scheme bracket within seven kilometres of the CBD are really getting snapped up quickly”.
“We’re definitely seeing that little bit of growth, just shy of 5 per cent in our medium price point,” he said. “With the uptick in Melbourne’s median house price, the inner west is starting to get narrowed by houses available to fall into that scheme.”
Engineers Vishwa Upadhyay, 29, and her husband, Nicholas Jenkins, 26, recently bought their first home in Yarraville for $1,205,000 after looking in the area since February.
“We missed out on everything we applied for so far,” Upadhyay said. It was important for them to live in or close to Yarraville, which Upadhyay said was friendly and multicultural.
While the couple had set their sights on other homes, they all failed building inspections because of structural issues.
Vishwa Upadhyay and her husband, Nicholas Jenkins, recently bought their first home in Melbourne’s inner west after searching since February. Credit: Eddie Jim
Eventually, they hired a buyer’s advocate, who helped them place the winning bid at a recent auction for a beautifully presented three-bedroom home.
“This was our first auction. We never went to auctions because they always sell for 20 per cent more than they advertise,” Upadhyay said. “This is the house we wanted: north-facing, in Yarraville, where we love the cafes and the multicultural vibe.”
The couple said that attending house inspections had been daunting because of the number of buyers.
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“The market is booming these days,” Upadhyay said. “We had been to so many inspections, and there were always 20 or 30 couples with us, and you always have to compete with four to five in the end. We missed out on places by just $5000 or $10,000.”
Despite the steady rises in property prices, Melbourne was still one of the better cities for first home buyers, said independent economist Saul Eslake.
“House prices going up at the rates they are going up in Sydney and Brisbane should not be seen as unalloyed good news,” he said. “From the perspective of first home buyers, the fact that Melbourne houses have been stagnating and are ... cheaper than in Brisbane, a smaller city, might be something to be celebrated rather than bemoaned.”
But that stagnation is over, which Eslake attributed to falling interest rates. “History tells you when interest rates come down, house prices go up,” he said.
Eslake said that despite Victoria’s population growing by 1.8 per cent over the year to the March quarter, the state should be praised for getting housing affordability right.
“The additional land tax and stamp duty the Victorian government has imposed on investors has probably prompted them to sell to home buyers. That’s not a bad thing,” he said.
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