Melbourne’s property market is facing an epic test
I know a few investors are eyeing the property market hungrily right now, trying to sniff out some bargains.
So far, the market hasn’t offered all that much. Listings remain low, and with mortgage freezes in place, most potential vendors are taking a wait-and-see approach.
I think the bellwether market here is going to be Melbourne.
As I’m sure you know now, Melbourne is going back into lockdown, with new cases spiking again:
With certain LGA areas become dangerous hot spots:
Most concerning, the number of seriously ill patients in Victoria is on a breakaway. In many ways, this is the most important statistic, since it gives us a feel for how overwhelmed the hospital system is, or is going to be.
So the government had to go into lockdown. I don’t think they had a choice.
But it’s a bitter pill to swallow, and it’s really going to strain the Victorian economy.
And in many ways, Victoria was already was already having a pretty rough trot of things, even before the recent outbreak.
Take the employment data for example. Victoria has seen the largest fall in payroll employment of any state, on a percentage basis.
And most worryingly for Melbourne’s property market, Melbourne was Australia’s number one destination for overseas migration – a flow that effectively dried up completely when the borders closed.
So put that together – an local economy under strain, hefty falls in employment, and a reversal of migrant demand – and you have a set of very challenging conditions for Victoria’s property markets.
I think if we start seeing some bargains on the market at fire-sale prices, it will happen in Melbourne first.
There’s no guarantee though. The mortgage freeze should prevent forced sales to a large degree, and the banks have just announced a four-month extension, which gets us through to the end of January 2021.
And if we get on top of Corona, or we get a vaccine, these factors could reverse very quickly. Immigration in particular should bounce back particularly quickly.
And the state and federal governments still have a lot of capacity (and willingness!) to support the property market if it really comes under pressure.
So I’m not convinced the market is going to break.
Still, for now, Melbourne is the city that bargain hunters will have their eye on.