Despite the down period, Melbourne remains a top prospect for buyers, supported by a strong economy and population growth

Dwelling values have been falling steadily in Melbourne over the last several months; however, still-high prices are pushing buyers to look into the lower quartile of the market.

The capital recorded the greatest annual decline in the national housing market at 13.9%, according to the CoreLogic Home Value Index for April 2019, but prices have yet to drop to a manageable level for buyers.

“Despite Sydney and Melbourne housing values falling, overall dwelling values relative to household incomes remain substantially higher than in other cities, which could be another factor skewing credit availability towards the middle to lower end of the market,” says Tim Lawless, head of research at CoreLogic.

Roy Morgan’s Inflation Expectation Index shows that inflation expectations in Melbourne nosedived to 3.9% in February 2019 from 4.7% a year earlier – the lowest level in over two years.

First home buyers are showing more interest in the market; however, lending policies could continue to restrict attempts to purchase.

Changes in rental rates and yields are happening faster than shifts in property prices. However, with yields remaining low in Melbourne, according to CoreLogic’s Quarterly Rental Review for March 2019, investors are likely buying with a negative gearing strategy in mind, but the tide could shift to other markets that have more to offer.

Long-term investors getting their due

Even with its recent struggles, investing in Melbourne has paid off for those who gambled on it in the past.

“According to CoreLogic’s recently released Home Value Index tracking property price movements over the last 20 years, Melbourne has witnessed a 274.6% increase in property prices – the highest growth of any Australian capital city,” reports James Nihill, director of Patrick Leo.

“Property is traditionally a long-term investment and clearly investors who jumped into Melbourne 20 years ago are reaping the benefits now.”

Nihill points out that with Victoria’s economy being one of the best in the country, it lends resilience to the property market, supported by strong population growth rates to combat supply problems, and initiatives to improve on transport infrastructure.

“It is undeniable that the housing market slowdown will dominate the headlines for the foreseeable future, but the reality is that the property market is dynamic and there are always opportunities if you know where to look,” Nihill says.

SUBURB TO WATCH
YARRAWONGA:
Investors’ paradise in regional Victoria

The suburb of Yarrawonga is linked to Mulwala at the boundary of NSW. It has been touted as an “aquatic paradise” given its proximity to Lake Mulwala and the Murray River. This location makes it a bustling tourist hotspot where people enjoy the sunshine, water, beaches and entertainment.

It’s also an investor’s paradise, with properties being very affordable. Despite consistent growth over the five years to March 2019, median house prices are still under $400,000, while the median unit value is less than $250,000. Rental rates have also risen in the year to January 2019, and returns are not shabby at 5.1% and 5.7% for houses and units, respectively.

Tourism: Yarrawonga is a hit with holiday makers because of its climate and shoreside location

Affordability: In spite of double-digit growth in recent years, Yarrawonga remains low-priced