Where is the Melbourne residential real estate market headed?
We don’t have a crystal ball, but we do know that the Aussie Dollar will have a significant impact on future house prices. Historical analyses prove this.
The below graph shows how Median $ House Prices in Melbourne have fluctuated over the last decade and a half (the blue bar shows whether median $ prices were up or down compared to the previous year). The graph also shows how the Aussie Dollar compared to the US Dollar during this time (green line).
The GFC of late 2008 to 2009 was an unusual global event that impacted markets very differently. If we treat this period as a unique anomaly, the correlation between Median $ House Price Growth and the Aussie Dollar is pretty consistent…
When the Aussie Dollar is low and/or trending downwards, Melbourne House Prices have tended to increase 6 months later. The inverse is true – when the Aussie Dollar is high and/or trending upwards, Melbourne House Prices have tended to flatten or even decrease.
The explanation is fairly straightforward.
Melbourne is a world class, multi-cultural city, with great education and employment opportunities; and, the Australian economy is open to (and dependent on) foreign capital. When the Aussie Dollar is low, Melbourne Houses become more attractive to foreign property investors, because their foreign currency can buy more.
The graph below shows the Aussie Dollar falling steadily from 2011, and stabilising at a level just below the long-term average. This trend suggests continued foreign property investor demand moving into 2017.
There are certainly other metrics to consider when forecasting future Melbourne House Price directions (think Standard Variable Rates, Unemployment Rates, Consumer Sentiment, etc.), but the direction of the Aussie Dollar is an important macro-economic condition that rarely gets enough attention in real estate circles. It is a metric worth watching when considering a residential property investment in Melbourne.