Melbourne house prices: Caution urged for first-home buyers as growth slows

 Melbourne’s slowing housing market does not spell the end of high prices, especially for first-home-buyers, experts say.

The city recorded its lowest quarterly growth in five and a half years, according to Domain Group’s State of the Market report released Thursday. House prices ticked up by just 0.1 per cent to $914,518, while unit price saw a slightly better gain of 0.7 per cent to $505,861.

Though price growth was easing, those looking to get into the market would not find it much easier, NAB chief economist Alan Oster said.

Hopeful first-home buyers Nick Gibbs and Amy Backhouse have been encouraged by slower house price growth. Photo: Greg Briggs

“Don’t expect to see your house or apartment or whatever you’re buying to radically fall in the next 12 to 18 months,” Mr Oster said.

He said the Australian Prudential Regulation Authority may crack down further on investor lending, but any dip in the market would be offset by owner-occupiers. He expected prices to stay flat for the rest of the year.

Though prices were starting to steady, they were still approximately double what they were six years ago, Grattan Institute chief executive John Daley said.

“Reflecting falls in interest rates, very rapid population growth driven by migration and not enough building – particularly in the middle and inner rings to accommodate that growth,” Mr Daley said.

He said first-home buyers were likely to buy in areas that had ongoing growth, and stamp duty concessions have actually contributed to pushing prices up in affordable suburbs on the fringes.

“Because first-home buyers often have a leverage limit, they increase the amount they’re prepared to pay by more than the value of the stamp duty concession, so those prices have increased even more than the mere value of the grant,” he said.

Median house prices in the west edged over the $600,000 limit for first-home buyer stamp duty cuts for the first time in the last quarter, rising by 1.7 per cent to $610,000. The area also saw the highest year on year growth across the city at 17.3 per cent.

“There’s a bit of frustration but I also understand it’s happening because of the properties we’re looking at,” Mr Gibbs said. “There’s a good supply, but there isn’t a good supply of good quality properties.”Hopeful first-home buyer Nick Gibbs and his girlfriend Amy Backhouse had been looking to buy in the north-east for more than a year, and had been unsuccessful at auction more than once.

House prices in the area, which included Eltham, Ivanhoe, and Heidelberg, fell slightly for the quarter – 0.7 per cent to $725,000 – but still saw strong growth of 11.5 per cent for the year.

Mr Gibbs said he was encouraged by slowing house prices.

“If we get more of an opportunity in six months to get in, that’s what we might do,” he said.

University of Melbourne economics expert Sam Tsiaplias said saving for a deposit was a hurdle many first-home buyers could not get over, as wages had not grown at the rate of house prices.

“House prices are growing at a rate so much higher than inflation and it’s just not possible for that continue in the long run,” Dr Tsiaplias said.

Inner Melbourne, including the CBD and suburbs in the inner north and south, and the inner east, recorded the lowest growth, with both areas seeing prices drop for both the quarter and the year.

Mr Daley said though prices had come down in some of the city’s most desirable suburbs, they were still not affordable for those entering the housing market.

“Certainly for houses. A townhouse in the inner and middle ring may be an equivalent price to a detached house on the edge, although often that is not the case because there is such a scarcity of medium density housing in the middle ring,” he said.