Buyer confidence is rapidly returning to Melbourne’s residential real estate market. The key reason why confidence levels are on the up and up is that buyer demand has been constant since Christmas but the number of properties on offer has tumbled from the high stock levels of a year ago.

That means slim pickings for many prospective buyers. Little wonder that the property shortage factor has worked to stabilise prices and put a floor under the market.

At the same time, more buyers are taking the hard-headed decision to actively compete for and purchase new homes – in part because Australia’s changing interest rate environment can reduce their buying power if a loan approval lapses and has to be renegotiated.

Nelson Alexander Director Nicholas West says mortgage finance approvals typically last for 90 days.

“People are finding that if they don’t buy in 90 days they have to refinance,” he says. “Often the Loan-to-Value ratios are different and their buying power is different under a renegotiated approval.

“Buyers are cottoning onto the fact that if they get a loan approval, they need to try and act and buy something in 90 days. Otherwise, they face reduced buying power if their loan approval is reassessed.”

Mr West says prospective buyers have shifted gears and are moving into “decision mode, rather than being in wait-mode,” because of stock shortages and financing deadlines.

Data from the Domain Group shows that Melbourne homeowners are holding back from listing properties, resulting in a near-30 per cent drop in the number of homes for sale in some city regions year on year.

Buyers in Melbourne’s northeast have seen the biggest drop in homes on offer. According to Domain, new listings in January – properties marketed for 30 days or less – were down 28.2 per cent year on year. This fall was closely followed by the inner south, where new listings dropped by 28.1 per cent.

The inner-city region was down 21.9 per cent, the outer east 19.7 per cent and the west 15.4 per cent.

Nelson Alexander auctions held so far this year have performed very strongly.

Mr West says the company’s auctions have notched up clearance rates in the 75 per cent-plus range, with some weekends producing auction clearance rates well above 80 per cent.

But he says there have been a number of weekends in February and March where 300 fewer properties have been put up for auction overall in Melbourne compared to the auction tally on the same weekend in 2022.

“Our auction clearance rates have been in the high 70 per cent and 80 per cent range,” he says.   

“That includes people who are buying before a scheduled auction. We are getting quite a few offers before, which tells real estate agents that there is some confidence in returning to the market and that people are now being decisive.

“I think what buyers are recognising is that the market is now at the bottom end of its cycle. They have also seen that interest rates are on the move, so smart buyers are recognising that it is the perfect time to capture the benefits of both the market hitting a bottom floor and the impact of rising interest rates on the levels of competition they face for homes.”

Domain’s Chief of Research and Economics, Nicola Powell, says the falling supply offers good news for sellers, as prices are stabilising due to competition for the limited number of properties.

“We saw in the December quarter in Melbourne last year almost a stabilisation in prices as fewer listings came to the market,” Dr Powell says.

Melbourne’s median house prices rose 0.7 per cent in the three months to December, to $1,032,903. That result came as the city recorded a total fall of 5.6 per cent in 2022 – the sharpest annual fall in more than three years.

Over February’s four weekends, the Real Estate Institute of Victoria (REIV) recorded more than 2,380 auctions. During the month, 1,569 properties sold, with 1,196 selling at auction, and 562 passed in. Some 373 properties were sold before the auction. The clearance rate averaged 72.5 per cent.

REIV figures show that clearance rates are sharply up on December 2022 (68.5 per cent), but February sale listings were down 30 per cent in February last year.

Other data from property analyst CoreLogic shows property prices are well above their pre-Covid-19 levels three years after the pandemic began, following a property boom and slowdown.

National dwelling values are now 14.8 per cent higher than in March 2020, CoreLogic figures show.

When lockdowns began, residential values fell briefly. But they soon bounced back due to emergency stimulus measures such as record-low interest rates, income support payments and mortgage holidays that averted a wave of panic selling.

CoreLogic’s researchers believe there is a strong likelihood that housing will be more expensive in the future than it was pre-pandemic, because of the mismatch between strong demand and a limited new supply of high-density housing.

Tim Lawless, the Executive Research Director of CoreLogic’s Asia–Pacific research division, says the return to a more positive trend in housing values has occurred alongside a persistently lower-than-normal flow of new listings.  

CoreLogic reports that capital city listings in the four weeks to March 15 were 19.9 per cent below the previous five-year average for this time of the year.

“Such low advertised supply is likely to be a central factor keeping a floor under housing prices despite a clear drop in demand,” Mr Lawless notes. “At the same time, we have also seen a rise in auction clearance rates back to around the decade average.”

Mr Lawless says the surge in permanent and long-term migrants could be another factor supporting the stronger market conditions: “While most of the housing demand from overseas migration is likely to flow into the rental market, with vacancy rates so tight, we may be seeing a higher than normal portion of long-term or permanent migrants choosing to buy rather than rent.”

Certainly, Nelson Alexander has seen an upsurge in enquiry rates and proactive buying by overseas-based clients in the past four months.

 “It is a great market to upsize into or downsize into,” Mr West notes.

“One key message to buyers is: don’t wait for a heap of stock.”

For further information on how your property is placed in today’s market, visit our latest Suburb Report here, fill out the form below or reach out to any of Nelson Alexander’s agents for a confidential discussion.