With the expected fall in median house price issued by the REIV and reported by all the papers, we saw a lacklustre weekend. We know there was still a clearance rate of 84%, but of most of the auctions our advocates attended there was a decided lack of enthusiasm. Even some of the agents were a little unsure at the lack of bidding. Most people who read the papers tend to have a knee jerk reaction whenever there is a drop in the Median house price.
This one, however, was expected. With the scaling back of the First Home Owners Grant, there are less low end property purchasers. The interest rates also affect the lower end of the market first. This has the effect of lowering the median house price decisively. If we look at the top third of suburbs in Melbourne, however, there has been significant growth and there will be for many years to come.
As interest rates climb toward the average home owner paying about 8.5% the suburbs on the outer areas of Melbourne will slow significantly and we may see another drop in the 2nd quarter median as well. Conversely, I would think there will be a small growth in the inner 20k ring of suburbs over the same time frame. If you break down the figures that have been released, whilst the house price median dropped slightly, the unit median went up.
Investors don’t need to have a huge yield (rental return and depreciation and tax benefits) to make plenty of money in property. It is all about capital growth. And there is still plenty of growth to come in the top third of suburbs in Melbourne.
If you need any assistance in purchasing a property in Melbourne, please do not hesitate to give us a call.
Ian James
