end of year review

Market Heat: Auctions and Buyer Demand

As at 27 November, the previous week saw 3,258 capital city auctions—the busiest since March.

• Preliminary clearance rate: 70.0% nationally, indicating strong buyer demand.

• Melbourne reached a 70.5% clearance rate; Sydney hit 70.8%.

• Demand is being fuelled by the government’s 5% deposit scheme and a shortage of listings and lower priced properties will be fuelled by the new shared equity Government scheme, Help to Buy.

• Australia had its highest volume of auctions last week since March, with 3,258 capital city homes going to auction last week.

• Melbourne had its third-busiest auction week of the year, Sydney recorded its second-busiest auction week of the year..

• With house values rising faster than apartments, median capital city values of houses now cost double that of median value apartments, a new record differential.

• Challenges such as huge increases in construction costs and delays in getting building and development permits in key precincts are impacting the feasibility of future developments with supply dropping remarkably.

• Melbourne's house market has struggled with only 20% growth in five years due to the effects prolonged lockdowns, migration losses and and investor-unfriendly taxes. Apartments have fared even worse.

• But Southeast Queensland has seen a surge of over 70% in housing values fueled by interstate migration, tight supply, lifestyle appeal, infrastructure spending, and confidence from the 2032 Olympics.

• Mega-event booms can fade quickly if not managed properly, as seen in Melbourne's current stagnation.

Houses Are Becoming Unobtainable for Many Buyers

Price growth in houses continues to outpace units, pushing more buyers toward apartments purely out of affordability.

2. New Apartment Supply Is Plunging

Construction cost blowouts and long approval delays mean many projects are being shelved.
→ Less future supply = stronger price pressure for existing apartments.

3. Melbourne Units Have Lagged for 10+ Years

After prolonged lockdowns, slower migration, and investor taxes, Melbourne units have severely underperformed.

4. Migration Has Returned

Population growth is picking up again, and renters are under enormous pressure. Rents are rising. Investor yields are increasing especially in Melbourne where you can 7%  to 8% rental retrun in the secondary market, with full rental occupancy, which is well above the costs of a mortgage- a situation I haven't seen for 15 years.

5. Security Has Become an Issue

Melbourne especially is facing a declining security issue right now. Home invasions, random house and car robberies has dented the once idyllic Melbourne lifestyle. While very worrying, it has meant an increasing interest in apartment for safety reasons. Single woman, older couples, and even families who once said they would never live in an apartment are seriously reconsidering their options.

6. Move Back Into Apartments?

Affordability, strong rental demand, the historic house–apartment price gap, the highest rental yields of any capital city, increasing migration and sky high prices in the other cities and years of underperformance all point to a potential turnaround phase in the Melbourne apartment market commencing next year.

Sydney apartments also likely to continue a strong performance.

Brisbane units will likely flatten, while Perth apartments should see a bit more upside before also flattening, again just on simple affordability.

We expect Melbourne apartments to gradually regain second spot to Sydney over the next few years.

What’s the Key Takeaways?

• National home values rose 1.0% in November, marking the third consecutive month where the national index has increased by 1% or more.
• Affordability pressures are at record highs, with the median dwelling value now 8.2 times household income. Households are dedicating 45% of their pre-tax income to service a mortgage at the median value. Affordable apartments could be the beneficiary.
• Interest rate-cut hopes have faded, as inflation rises to be above target and interest rates are expected to stay on hold, dampening housing sentiment.
• Rental markets remain extremely tight, with vacancy rates near record lows (1.5%) and rents up 5% annually, pushing rental unaffordability to new highs.
• Single income renters are facing huge rental stress. Double and triple income renters are faring better.
• Supply shortages and investor demand continue to support prices, despite looming credit tightening measures from APRA.

The combination of affordability, tightening supply, recovering migration, and the record house–unit price gap rarely line up this clearly.

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