Melbourne house prices head for record high

Powell said the Australian Government’s expanded 5% Deposit Scheme in early October would also likely push prices up in the low and mid-market. In Melbourne, income limits have been removed, the number of places is now unlimited and property price caps have been raised to $950,000.

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“It will increase property prices,” he said. “When you set a price ceiling for an incentive, you tend to find clusters of activities that are as close to that limit as possible.”

Powell said the increased price cap would also give buyers “more geographic options” because homes in the more expensive central suburbs would now be eligible for the program. “The outer suburbs were already well covered by the previous containment… and now middle suburban homes will also be taken over,” he said.

On a regional basis, unit prices were highest in the northeast, with an increase of 7.1 percent in three months to an average of 605 thousand dollars, followed by the outer east with an increase of 6.9 percent.

Home prices in the northeast rose 2.9 percent in the quarter to an average of $817,050, while home prices in the northwest rose 2.2 percent.

Jas Stephens real estate agent John Galea, who represents Melbourne’s inner west, said “homes within the first home purchase program within seven kilometers of the CBD are being bought up really quickly”.

“We definitely see a little 5 percent growth at our mid-price point,” he said. “With the average house price in Melbourne rising, the inner west is starting to shrink in size from homes that fit this scheme.”

Engineers Vishwa Upadhyay, 29, and husband Nicholas Jenkins, 26, recently bought their first home in Yarraville for $1,205,000 after scouting the area since February.

“We have missed everything we have applied for so far,” Upadhyay said. It was important for them to live in or near Yarraville, which Upadhyay said was friendly and multicultural.

Although the couple had their sights set on other homes, all of them failed building inspections due to structural problems.

They eventually hired a buyer’s attorney who helped them place the winning bid at a recent auction for a beautifully presented three-bedroom home.

“This was our first auction. We never went to auctions because they always sell for 20 percent more than they advertise,” Upadhyay said. “This is the house we want: north facing, in Yarraville, where we love the cafes and multicultural atmosphere.”

The couple said attending home inspections was intimidating due to the number of buyers.

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“The market is booming these days,” Upadhyay said. “We went to a lot of inspections and always had 20 or 30 couples with us, and you always end up having to compete with four to five couples. We just missed out on places by $5,000 or $10,000.”

Independent economist Saul Eslake said Melbourne was still one of the better cities for first home buyers despite the steady rise in property prices.

“House price increases at increasing rates in Sydney and Brisbane should not be seen as pure good news,” he said. “From a first home buyer perspective, the fact that Melbourne homes are stagnating and… cheaper than the smaller city of Brisbane may be something to celebrate rather than bemoan.”

However, this recession, which Eslake attributes to falling interest rates, has ended. “History tells you that when interest rates go down, home prices go up,” he said.

Eslake said the state should be praised for getting housing affordability right, despite Victoria’s population growing by 1.8 per cent in the year to the March quarter.

“The additional land tax and stamp duty the Victorian government has imposed on investors has probably led them to sell to home buyers. That’s not a bad thing,” he said.