Melbourne Property Market Forecast 2020

With 2020 now well and truly underway, we decided to look at trends and predictions for the Melbourne and Victoria housing market for the rest of the year.

The Melbourne property market is looking very strong in 2020, on the back of high growth in house prices in the second half of 2019. Last year, average property prices dropped to the lowest point in years, before a very strong rebound started around the mid-point of the year.

In fact, it was the strongest turnaround in history for the Melbourne market.

Melbourne city
Melbourne house prices are on the rise for 2020

House prices are continuing to grow for Melbourne, and the rest of Victoria, as we move further into 2020. However, it is likely prices in Melbourne will begin to plateau at some point this year, as affordability limits for buyers are reached.

With low interest rates, relatively easy lending conditions and the prospect of a further rate cut by the Reserve Bank, buying conditions look set to remain positive for the rest of the year.

Overall, 2020 is looking like a good year to achieve a high selling price for your home.

What happened to Melbourne house prices in 2019?

Melbourne house prices grew by 5.3% over the course of 2019. This growth was due to strong increases in the second half of the year, after prices dropped to their lowest point in years around June.

The slump in the market in the first half of 2019 continued on from 2018, and was contributed to by tough lending conditions in the wake of the financial services royal commission.

The turnaround in prices can be mostly attributed to an easing of lending restrictions, low interest rates and continued strong population growth.

The top end of the market has had the most growth since the recovery in prices began.

The upper quartile grew 11% in the second half of 2019, while prices in the lower quartile rose by only 5.7% during this time.

Melbourne house prices chart
This chart from Westpac shows real estate trends in Melbourne over the last 10 years

The highest growth in prices was in the inner regions of Melbourne, where average prices were 19% higher at the end of December compared to a year earlier.

At the end of the year, the median price for a home in Melbourne was $778,649, while the median price for an apartment was $576,475.

The Melbourne real estate market is forecasted to continue to grow strongly in the first few months of 2020, before beginning to plateau as affordability limits are stretched.

Melbourne property market: Expert forecasts for 2020

We looked at a variety of experts’ predictions for housing prices in Melbourne and Victoria for 2020.

Overall, property prices are expected to continue to trend upwards, but experts generally agree they will start to plateau out at some point in the year.

Experts are predicting growth in the Melbourne housing market in 2020

Based on these predictions, it looks like 2020 will be a good year to sell your property in Melbourne.

SQM Research predictions

Analysts at SQM Research are forecasting property prices in Melbourne to grow by 11-15% under their most likely predicted scenario for 2020.

In this scenario, interest rates would remain at their current rate, the economy would improve, and APRA would not intervene to increase lending restrictions until at least the end of the year.

If this scenario eventuates and the Reserve Bank also cuts rates further, as many expect, SQM predicts an increase in Melbourne house prices of 12-17%.

SQM recognises the possibility of APRA intervening with lending restrictions before the end of the year to prevent prices from becoming too unaffordable. If this were to happen mid-way through the year, along with the conditions of the first scenario, it predicts prices would rise by only 5-9%.

It views houses in Melbourne as currently being very over-valued, meaning that affordability limits are likely to be reached soon, as prices continue to rise.

AMP Capital predictions

AMP Capital expects Melbourne house prices to hit record highs by March 2020, fuelled by low interest rates and a dwindling supply of apartments. It sees a strong possibility of renewed tightening of lending restrictions by APRA if prices continue to rise after this point.

However, it predicts prices will naturally plateau after this peak, as affordability becomes more of an issue for buyers.

ANZ predictions

ANZ is forecasting property values in Melbourne to rise by about 9%.

It had previously predicted a lower rate of growth earlier in 2019, but revised this as lending restrictions eased towards the end of the year.

It expects that affordability limits will be reached earlier than in previous boom periods, due to lending conditions still being relatively stricter in comparison to before the royal commission. At this point, growth is likely to slow down and demand displaced somewhat to other capital cities.

Westpac predictions

Westpac is forecasting growth in Melbourne house prices of 6% in 2020.

It sees the strong momentum of 2019 carrying over into this year, but beginning to fade as affordability issues re-emerge. It views affordability as already being stretched as of the end of 2019, and predicts this will inhibit growth reasonably early on in 2020.

Like ANZ, Westpac also predicts some would-be buyers will begin to be priced out of the market and seek out more affordable areas.

Long-term Melbourne property market outlook

Looking ahead to 2021 and beyond, the Melbourne and Victorian real estate market is forecasted to remain robust as strong population growth continues.

Melbourne is the fastest growing city in Australia, and in the top 10 fastest growing cities in the world.

Looking ahead

Michael Yardney of PropertyUpdate sees the increasing population, a strong economy and growth in the jobs sector underpinning a robust Melbourne property market for the next few years.

He also sees an increase in first home buyers, thanks to government incentives, contributing to demand and prices growth.

The more expensive end of the market has had the strongest recent gains and is likely to continue to be stronger than the lower end, with a relatively high supply of apartments and units in Melbourne slightly restricting growth in the bottom part of the market.

QBE is predicting a price increase of 5.1% for Melbourne houses over the period of June 2019-2022, and an increase of 3.8% for apartments.

It also sees strong population growth ensuring a strong and stable market for the next few years.

New dwelling completions have also been dropping off due to a reduction in building approvals. Along with the rising population, this will contribute to tightening vacancy rates, which will further strengthen the market.

Though it sees the market remaining robust, it believes growth will be relatively limited due to the stricter lending conditions now in place after the royal commission, even though these conditions have been relaxed somewhat.

The regional Victoria housing market forecast is also looking very positive for the next few years, with QBE predicting prices in some regional centres to grow more than in Melbourne.

It’s forecasting an increase of 7% for house prices in Bendigo by 2022, and an 8% rise for Ballarat.

Geelong house prices are predicted to grow a little slower than Melbourne, with a forecasted increase of 4% by 2022.

Overall, the housing market in Melbourne and Victoria is looking very positive for sellers in both the short and long-term. If you’ve been thinking about selling your house, 2020 could be the year to do it.