Understanding price growth

It’s interesting to note the increased level of speculation and ‘crystal-balling’ whenever we experience economic turbulence. With over 40 years combined experience, here’s what we see:

• Median house prices in Melbourne have grown by 7.9% per annum. This equates to a doubling effect
• Median unit prices in Melbourne have grown by 7.7%per annum
• A slowdown in transaction activity such as created by pandemic creates pent-up demand. This puts pressure on supply and creates rebounds in the market
• Unlike previous downturns, this latest one was not due to economic causality. Furthermore, the Victorian economy was on an upward swing leading into the pandemic
• Sales figures are showing a flattening of price growth rather than a shrinkage. This is similar to what we saw during the recent impact created by the Royal Commission into lending
• All these observations suggest a short-term impact.
• We are in a buyer’s market.

As you’ll see from the graph on the left, over a 10-year period the growth trend is not perfectly linear (ie. not a straight line). Fluctuations in the market are normal and often result in an ‘over-correction’. The general ‘rule of thumb’ is that Melbourne property values double every ten years. However this can vary depending on the type of dwelling, location and nearby amenity and the social standards of the suburb. The important thing to remember here is that it’s difficult to ’time the market’. It’s more about getting in if and when you can afford to, and sticking it out for the long-run.