Urban IQ: June Quarter 2020

UDIA Victoria, in partnership with RPM Real Estate, has released the latest quarterly Urban IQ research publication.

The research highlights the positive effect of HomeBuilder, demonstrating that even with significant uncertainty, government cash grant offers are largely taken up by homebuyers on the cusp of making a buying decision.

We are using this research to bolster our case for the Victorian Government to introduce market stimulus that would enable a more natural transition out of the HomeBuilder grant.

Read the full Urban IQ report, June 2020 quarter, in English

Read the full Urban IQ report, June 2020 quarter, in Mandarin

Summary of Key Findings

June Quarter 2020

HomeBuilder in Victoria

The effect of HomeBuilder was immediate with enquiry levels through May and June rising to levels not seen since the peak of early 2018, along with deposits reaching a long-term high in June.
Activity eased in July as Stage 3 restrictions (second lockdown) came into place. Nevertheless, new deposits through July and August sat above the level achieved in the first months of the year.
Through Stage 4 restrictions we anticipate a further easing in activity. However, with deposits carrying over from the previous month we expect August to be far more robust than what the market arguably would have delivered had HomeBuilder not been introduced.
Supply: Will there be enough titled / to be titled lots in the market to satisfy demand? The assumptions made are:
- At the end of July there were 1,559 lots left as titled stock.
- There are an estimated 2,435 lots that are anticipated to be titled between August 2020 and March 2021.
- Combined, there is an estimated 3,994 lots that are titled / to be titled.
- At the average sales rate of 1,050 lots per month, the total number of titled / titling lots can be calculated, equating to 3.8 months of eligible stock left.
- Based on these assumptions, the market will be left short and an underlying level of demand unfulfilled. However, we are assuming all titled / to be titled lots will be absorbed. In reality, this will not be the case, as some larger lots are less favoured than sub-400sqm lots. As such we expect there to be some unwanted titled stock remaining on the market.
HomeBuilder will likely lose momentum through the six-week Stage 4 lockdown. However, the real test will be how the industry and wider economy performs through the construction phase of projects in 2021/22 and 2022/23, following the withdrawal of government stimulus and as the effect of minimal overseas migration through 2020 and a heavily reduced level through to at least the middle of 2021 is felt more broadly. This likely reality supports UDIA Victoria’s case for State Government to introduce market stimulus that would allow for a more natural transition out of the HomeBuilder grant. By allowing more time, pressure on buyers to either ‘buy’ or ‘not to buy’ considering the current uncertain economic conditions will be lifted.
With all grants, there is a natural pull-forward of buyers. By providing a further market stimulus, this pull-forward will be tempered, reducing the drop off in activity at the end of the grant period.

Residential market prices (Melbourne)

Over June quarter 2020, sales recorded a preliminary median:

House price of $864,000 (-3.5% change from the previous quarter, and +8.8% from the corresponding quarter a year earlier).
Unit price of $621,000 (-2.5% from the previous quarter, +5.2% from the corresponding quarter a year earlier).
Land price of $313,500 (+0.9% change from the previous quarter, and +2.0% from the corresponding quarter a year earlier).

Finance Activity (VIC)

New owner occupation loans in Victoria increased by 2.5% in June quarter 2020, from the previous quarter, reaching 24,212 approvals.
New loans for residential land (14.9%) and the construction of a new dwelling (13.3%) experienced high quarterly growth. This is primarily attributed to the introduction of HomeBuilder.
Loans for newly erected dwelling loans rose by 6.1%.
Conversely, new loans for established continued to decline in June quarter 2020, falling by 2.8%.
First home buyers share of total new owner occupier loans improved to 35.3% in June quarter 2020. This was its highest proportion since the post GFC period when first home buyer stimulus was at its greatest.

Commencements (VIC)

Detached house commencements are projected to have declined by 4.6% in 2019/20 to 34,870 starts, with a further 7.1% reduction anticipated over 2020/21 to 32,400 starts.
The declines in multi–unit dwelling commencements are expected to be more substantial, at a projected 22.1% over 2019/20 and 42.7% in 2020/21. As a result, multi–unit starts will fall to 19,930 dwellings in 2019/20 and just 11,410 dwellings in 2020/21. This will be the lowest level of construction activity since 2007/08.

The Urban IQ Property Market reports are produced for UDIA Victoria by RPM Real Estate Group.

The reports provide a quarterly update on the Victorian residential market including economic activity, prices, finance, building, sentiment and affordability metrics.