PM May-June 2023 upload

Rental Market Update

May - June 2023 Review

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From our corporate director

Dean O’Brien

“Home prices continue to accelerate”

Welcome to the new financial year and the Reserve Bank of Australia has started off the new year with some good news for homeowners pausing the interest rate cycle and keeping the cash rate at 4.10%, the main reason for doing so would have been because of the better than expected inflation numbers that came out in late June where it dropped from 6.8 per cent in April to 5.6 per cent in May.

Over the four auction weekends in June, the REIV reported 2,196 auctions, of which an overall 1479 sold, providing a clearance rate of 79%. We had school holidays in June, which meant the number of auctions in comparison to May was down, but the clearance rates in June improved over May; in fact, June's clearance rate has been the best result for the "Year to Date".

Traditionally, there is less seller competition in the colder months but selling when the market is this strong is a smarter move then waiting for the warmer spring weather when listing supply is likely to increase, giving buyers more choice which will place downward pressure on sale prices. The other reason to consider selling now rather than waiting is because of fixed-rate mortgages switching to variable rates, and this is certain to increase through the remainder of this year, which will have home owners considering a sale of their property due to the now high holding costs.

The Australian Bankers Association (APA), which is made up of the Big 4 banks, has said that around three times as many fixed rate mortgages (222,800) will expire over the June quarter compared to what expired over the March quarter (78,300), and for the September quarter there are also large volumes of fixedrate mortgage expirations with 208,000 and 184,000 for the December quarter.

So, to reiterate, the stronger-than-ever auction clearance rates, shows demand is running strong. The demand is reinforcing property values and creating stability now, so it’s a good environment to sell your home with the least amount of competition possible.

In other news, the Australian Bureau of Statistics (ABS), reported the number of loans issued for the purchase or construction of a new home plunged to a record low in April, down 74% from the January 2021 peak, and retail figures rose 4.2% in May compared to last year. In summary, the reality is interest rates are now a month by month situation, some data points are showing a slowdown but contrary to this some areas are still feeding inflationary pressures.

The Melbourne Metro Home Value Index as reported by Corelogic over June grew by 0.7% or $6,665 on median prices for all dwelling types. Regional Victoria on the contrary experienced a decline of 0.4% or $1,813 on median prices average for all dwelling types.

Now, looking at the rental market rent increases in Melbourne grew strongly in June to post an increase of 1.1% with the median rent in Melbourne for all dwelling types now at $551 a week. Vacancy rates are at 0.8% and Melbourne for the last financial year was recorded as being the cheapest capital city to rent a property in, Hobart was the second cheapest at $552 a week, Brisbane at $614, Darwin $600, Perth $599, Adelaide $549, Canberra $669 and Sydney at $773 a week. The news for the rental market looks set to continue with property investment loans for new homes down 74% from the peak in January 2021

That’s all for this month, I hope you are enjoying the winter weather.

Regards,

Dean O'Brien Corporate Director

As the rental crisis worsens, people are applying for homes they have not seen, offering more than the asking price

When Celia McDonald was told her rent was being raised by $150 a week, she knew she had to find a new place.

"I just found that quite an unreasonable increase," the 35-year-old said.

"Even if I could afford that amount, I would be in a much nicer place than what I'm in currently."

However, the search for a new home has not been easy.

When she went to one inspection, she was shocked to find more than 200 people lined up to view the place.

Ms McDonald said the agent told her she had "never seen anything like this".

She has also noticed some places being rented out before the first inspection had happened, so she has shifted tactics.

"Obviously, places are taking applications before they're viewing," she said.

"So I've started doing that now — I'm applying for places I haven't seen."

The housing struggle is being felt around the country, as rental prices skyrocket and vacancy rates plummet.

Data from CoreLogic released this month showed the median cost of a rental in Australia went up by 10.2 per cent in the space of a year, a record high. In Melbourne, rents went up by 9.6 per cent.

The data also showed the rental vacancy rate in Melbourne was 1.1 per cent in December last year, compared to 3 per cent at the same time 12 months before.

Tenants union seeing 'unprecedented rent increases'

The shortage explains why someone such as Ms McDonald — who is a strong applicant on paper — is struggling to find a rental. She has good rental history, savings, and a full-time job as an executive assistant.

"In the back of my head I'm like, 'Do I actually contemplate moving back with my dad while I keep looking?'" she said. "It's brutal out there at the moment."

The price of rent is going up around Victoria, with inner Melbourne most affected

Change in rent cost from the 12 months to December 2022.

Tenants Victoria's community engagement director, Farah Farouque, said even people with stable incomes and decades of rental history were not having any luck.

"We're seeing people applying for dozens of homes and not having any success," Ms Farouque said.

"They're also negotiating, in some cases, unprecedented rent increases, which makes staying in the house that they're renting pretty challenging."

She said the tenants' union was being swamped with calls from struggling renters, and it was unable to keep up with demand.

Melbourne property manager says rental crisis worst he's seen Jacob Visser — who runs a property management company in Melbourne — said rental availability was the worst he had seen in more than 10 years working in the industry.

"I've never witnessed, or experienced, the levels of crisis we are currently seeing," he said.

As a tenant himself, Mr Visser had been considering moving into a new rental, but has now changed his mind.

"I've sort of disregarded that idea, because it all seems too hard and too competitive," he said.

"I would consider myself a strong tenant, but I still wouldn't risk moving in this market."

Mr Visser said his company was receiving 20 to 30 applications per property.

A few years ago, he noted, it was around five to 10 "for a reasonable quality home".

He said that 90 people came to a recent inspection.

Some applicants were offering higher than the advertised rent, he said, which could result in prices being pushed up for everyone.

"Tenants are desperate — really, really desperate," he said.

It is illegal for property owners and managers to invite rental bidding, but the law does not stop them accepting a higher offer from an applicant.

Consumer Affairs Victoria has been made aware of 44 instances of illegal rent bidding since the new laws took effect in March 2021.

Prospective tenants trapped in 'bidding war'

Melbourne resident Sophie was shocked to find her successful application for a rental was overturned when someone else made a better offer.

"The person offered $100 more than the listed weekly price, so they gave it to them," she said.

"I've never heard of the concept of a bidding war for a rental, let alone $100 a week."

Sophie does not want to offer above the asking price, but feels she has no choice.

Sophie and her partner have applied for 15 rentals since the new year, with no luck.

Despite a combined yearly income of more than $100,000, the couple has started offering more money than the asking price, just so they can get a look in.

"It sort of puts us in a corner," Sophie said.

"We've just had rejection after rejection, it's not looking good."

The cost of rent is preventing Sophie and Scott from saving enough money to buy their own home.(Supplied)

The couple had hoped to buy their own home soon, but Sophie said the steep price tag on their current rental and those on the market was making home ownership unachievable.

"That's sort of out the window in the meantime," she said.

"We've also introduced more than 130 rental reforms to strengthen renters' rights, better protect vulnerable renters and enable people to turn the house they rent into their home," they said.

"We are supporting Victorians through our affordable housing rental scheme, the $1.6 billion Victorian homebuyer fund and tax incentives to support build-to-rent developments."

Joey Moloney — a housing expert with the Grattan Institute — said government investment in affordable housing could help solve the crisis, as rental supply failed to keep up with demand.

"There's fewer properties available for the [number] of people [who] are looking for somewhere to live," he said.

Mr Moloney said construction times for new homes were blowing out, due to supply issues, meaning not enough homes were being built.

On top of that, he said, more people were wanting to live alone and migration numbers were returning to normal.

He said the crisis was playing out around the country, including in the regions where many decided to move after COVID-19 lockdowns.

"There are pockets of regional areas which seem to be faring even worse than the major capitals," he said.

He welcomed the federal government's housing accord, which will deliver more affordable housing around the country.

"Ultimately, the only thing that can fix this in the long run is a supplyside response," he said.

"It's going to get worse before it gets better."

Rental review

5 reasons why OBrien

Reason #1

Access to more renters.

Inter-office promotion and selling increasing your property’s exposure. Latest prospective renter database.

Reason #2

Experience, integrity and knowledge.

Local area specialists, highly skilled and trained property managers across all offices.

Reason #3

Faster leasing time.

Our low days on market can translate into marketing savings. Less time on market ensures you receive the best possible price.

Reason #4

Constant improvement.

All property managers receive specialist industry training and have regular meetings.

Reason #5

Specialised marketing.

Professional photography and lease boards, utilising Australia’s premier real estate websites.

Bridget Daly

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Property Management Growth Specialist

Josh Barbut

0439 782 898

Property Management Growth Specialist

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