Why is Melbourne property falling more than everywhere else?

The fallout from COVID-19 has seen Melbourne property markets fall by 2.3 per cent, making it the worst-performing capital city, new research has shown.

Numbers released in June by CoreLogic show that Melbourne has fallen by almost three times as much as Sydney.

“The results may be surprising, particularly when considering that the Sydney growth rate, which often moves quite closely with Melbourne property, was less than half this rate in the same period (at -0.8 per cent),” CoreLogic’s head of research, Eliza Owen, said.

“Data suggests that the Melbourne market has experienced a turn in its market before others. This was evident in the most recent upswing, where Sydney and Melbourne saw peak growth rates around November 2019, while other capital cities continued to see a more moderate but accelerating growth rate.”

Cyclically then, it is not unreasonable to see Melbourne values slip at a greater rate than other capital cities. CoreLogic also suggests that property markets where incomes are higher, households are more indebted and investor activity is high can be more sensitive to changes in the economy.

“High levels of investment are also evident in the Melbourne market, which may be contributing to volatility, though this is present in Sydney, too. ABS finance data shows investor lending has comprised an average 32.3 per cent of total mortgage lending across Victoria for the past five years,” Ms Owen said. 

Melbourne property markets may be disproportionately affected by demand shocks in employment and migration, with government figures showing it was hit hardest.

The ABS payroll data shows that Victoria fell by 7.6 per cent, compared with the national average of 6.4 per cent, for the week ending 13 June.

Comparison wise, Sydney’s payroll data fell by 6.1 per cent.

The Melbourne housing market has been the most exposed to demand from net overseas migration. Over 2018-2019, Melbourne had the highest level of net overseas migration, at 77,369. This accounts for 38.2 per cent of net overseas migration to Australia, according to CoreLogic. 

Finally, it is worth noting that in the coming months, a second spike in COVID-19 cases across Melbourne will be an added blow to the economy and housing market.  

“The longer businesses and households are subject to social distancing, the greater the impact will be on the housing market,” Ms Owen concluded.

Article reproduced from Nest Egg by Cameron Micallef

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