Buyer Demand Drives Increases in Property Prices

Written by Enzo Raimondo in Buying on November 24, 2014

What do buyers want? The answer to this question helps explain why Melbourne property prices rise more in some suburbs than others and can help buyers predict which suburbs will offer the biggest capital growth.

Aerial of MelbourneThe Ripple Effect on Prices

It’s called the ripple effect: as prices rise in a sought-after suburb, buyers wanting good transport, shopping and schools opt for a more affordable nearby suburb. So, like ripples on a pond, prices in those neighboring suburbs begin to rise.

This is being seen across Melbourne as first home buyers and those on tight budgets find it harder to buy in their “first choice” suburbs. For instance Coburg, with a September quarter median of $828,750, had the highest capital growth of any suburb –16.8 per cent. It is proving popular with buyers priced out of suburbs such as Brunswick and Northcote.

Room for Families to Grow Also Drives Prices

If there’s one thing families want as well as a good location, it’s space. After all, a tiny inner-city terrace may have your ideal cafe nearby, but being crammed in there with kids and pets reduces its appeal.

Demand from families seeking more space has led to consistently strong price growth in family homes across Melbourne in the past year. Melbourne’s bedroom median home prices for each suburb for the year to September 30, show that in inner Melbourne the median price of a four-bedroom home grew by 3.9 per cent to $1,455,000, compared with the year ending June 30. In outer Melbourne, with more large homes, the growth was 5.6 per cent to $551,000.

And in middle Melbourne the median price of a four-bedroom house reached $827,500, up 4.1 per one cent, just slightly less than the 4.2 per cent growth in the price of a middle suburbs three-bedroom house.

The latest REIV figures also showed that four-bedroom homes in Mount Waverley, with a median price of $970,000, topped the list for suburban capital growth with 8.7 per cent for the 12 months to September 30. Four-bedroom homes in Doncaster and Mount Martha were also in the top 10.

Affordable Buying

Melbourne’s property price growth has led to strong interest in more affordable suburbs. And there are still affordable homes available in various areas of Melbourne, including in suburbs with good transport links such as Werribee, where the median is just $335,000, or St Albans, at $365,500. Both have excellent shopping and train links, yet their medians are almost half the overall Melbourne median of $649,000.

Each quarter, the REIV lists the city’s 10 most affordable suburbs. These are excellent market entry points for those for whom funds are tight, and good capital growth potential for the investor.

Take Craigieburn, for example. This outer north-western suburb has train access to central Melbourne, parks and reserves on its doorstep and a shopping centre undergoing a massive expansion. At the end of June it was Melbourne’s sixth most affordable suburb, with a median house price of $345,000, down 4 per cent on the previous quarter.

What a difference three months make. At the end of the September quarter Craigieburn house prices had the 12th highest growth in Melbourne and was one of our top 20 growth suburbs. Its median price is now $377,500, up 9.4 per cent over the quarter. Buyers who bought their a few months ago now have increased equity in their investment. But for those who hesitated, the cost has gone up.

Melton West is Melbourne’s most affordable suburb – it was in June and it still is. Back then, its median house price was $270,000, whereas by the end of September that price had risen to $290,000 – up 3.6 per cent, growth those who bought three months ago have now added to their equity.

Prices in several of our other most affordable suburbs are on the move. Werribee’s median rose 9.3 per cent in the September quarter, Carrum Downs rose 4.5 per cent and Cranbourne was up 4.1 per cent on the previous quarter.

Other affordable suburbs, including Wyndham Vale – second most affordable with a $330,000 median house price – Hoppers Crossing, Deer Park, Truganina and Pakenham, experienced little growth or even slight falls in price in the past quarter. But for the canny buyer this represents an opportunity. As those who already have a foothold on the property ladder know, no one ever made money from property by watching from the sidelines.

It’s also the case for regional Victoria, where price growth in many commuter towns has resulted from families moving from Melbourne to find an affordable home. The median price for a four-bedroom home in regional Victoria was up 7.3 per cent to $412,000 in the year to September 30, compared with the year to June 30. And the price for more affordable two-bedroom homes there rose by a remarkable 11.5 per cent to $254,250.

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