Why you should think about buying a house in Melbourne
This could be hopeful news for young people looking to buy a house. And there's one market in Australia where people are starting to notice value: Melbourne.
The Melbourne discount is huge now. The following chart shows how much less you pay for a separate house in Melbourne compared to Sydney.
MORE: Where you should've bought in Aus 10yrs ago
Melbourne apartment values follow a similar pattern, albeit at a smaller discount to Sydney.
Sydney house prices really are astonishingly high.
Higher interest rates make houses cheaper, in theory. The more it costs to borrow money from the bank, the less people borrow and the less they have to spend. Lower interest rates do the opposite – they make houses more expensive.
If you can afford to pay back $1000 a week, the bank will lend you more when rates are at 3 per cent than if rates are at 4 per cent and you will therefore have more to spend on a house, bidding the price up.
So the RBA's surprise choice this week to leave interest rates at 3.85 per cent (everyone thought they would cut to 3.6 per cent) means any borrowing and spending boom in the housing market will be delayed for a while yet
The RBA uses interest rates to control inflation, and as we all know inflation has been way too high. High interest rates are supposed to help inflation fall and they seem to have done that – inflation is back in the target range of 2 to 3 per cent.
So people thought it was time to bring interest rates down.
The monetary policy board saw it differently and said it 'could wait for a little more information to confirm that inflation remains on track.'
Has housing gone crazy?
It depends where you live.
The RBA said in May: 'housing price growth has remained relatively stable, suggesting that it is yet to respond materially to easier borrowing conditions.'
But that's on average across the country.
There's only one interest rate for the nation. We don't' have an RBA of Adelaide – an RBAA.
If we did they might not have cut interest rates at all because, yes, house prices in Adelaide have gone crazy. They're up 7.8 per cent over the last year, while Melbourne prices have fallen.
The Melbourne discount, in fact is no longer only available vs Sydney. As the next chart shows the city is on special vs the whole country just about.
Why have Melbourne house prices fallen vs the rest? The RBA's interest rate suppresses the whole market on average, so it can't explain the differences between markets.
What is different between markets is supply and demand. As the next chart shows, Victoria now has more dwellings per person than it used to, thanks to building lots of apartments, and a population fall during covid.
In the last little while, dwellings per person are rising. The reverse is true in WA, where dwellings per person are near a record low, and falling.
I like to think about the supply and demand dynamics as the soil and the interest rate as the rain.
When rate cuts arrive, rain will fall on these markets, but not all of them will blossom equally. If, based on this chart alone, I was going to pick a single destination where housing might not boom after the next rate cut, it would be the ACT.
The Canberra discount could be the new version of the Melbourne discount and the ACT might be the best bet for home buyers in the next few years.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Perth Now
5 minutes ago
- Perth Now
ASX dips as investors take profits
Investors have made hay on the Australian sharemarket following Wednesday's record high, cashing out and pushing the bourse down on Thursday. The ASX200 remained in uncharted territory above 8800 points though, closing for a daily loss of 12.3 points or 0.14 per cent at 8831.4. The broader All Ords lost 0.1 per cent to 9102 points while the Aussie dollar lifted above US65 cents, hitting 65.22 cents. Red numbers flashed for six of the ASX's 10 largest health care stocks, dragging the sector to be the weakest performer with a 1.2 per cent loss. Behemoth CSL lost 1.5 per cent (at $265.53) while Resmed and TELIX Pharmaceuticals lost 2 per cent each as well. Reusable pallets and crates firm Brambles flattened out following its all-time high in July, shedding 3.3 per cent (at $23.31) to be among the main backsliders on the industrials sector, which as a whole lost ground. Across the board, five of 11 sectors were in the red. Eyes will be on RBA Governor Michele Bullock on Tuesday, for an almost-guaranteed cut to the cash rate. NewsWire / Nikki Short Credit: News Corp Australia With a reduction in the cash rate next Tuesday looking certain, markets are split on whether it will be a 0.25 or 0.5 point cut. Home Loan Experts chief executive Otto Dargan says the RBA is teetering toward hard landing territory. 'The global bond markets are already pricing in emergency cuts, and with the equity crash in early April rattling confidence, the RBA has no choice but to get ahead of the curve,' Mr Dargan said. 'This isn't about inflation anymore, it's about restoring stability and avoiding a credit crunch. 'Borrowing power is still strangled, buyers have equity but can't service, and the RBA knows a slow response now risks turning a soft landing into a hard one.' Investors continue to seek the safe haven of gold, with the ASX All Ords Gold benchmark up 39 per cent this calendar year. Rebecca Le May Credit: NCA NewsWire Real estate stocks were a key driver for the record high ASX200 close on Wednesday, and the sector was locked and loaded, Mr Dargan said. 'If there is another (interest rate) hold, it'll be for optics, but rate cuts are coming before Christmas. The real story is how quickly lenders will pass these on to borrowers, and how that will ignite property markets already itching for a rebound.' Expectations of rate cuts buoyed consumer stocks to make major gains on Thursday. JB Hi-Fi added 1.8 per cent (at $116.41) and is 74 per cent up over the past year. Heavyweights Aristocrat Leisure (up 1.5 per cent at $71.38) and Eagers Automotive (up 2.2 per cent at $20.60) pulled the discretionaries sector deep into the green on the day. The sector's seven most valuable stocks are all well into double digit gains across the past 12 months. Wesfarmers was in on the act, with this week's gains pushing the company above $100bn market cap, joining the big four and CSL as 'hectocorns'. There were serious rumblings for sharemarket operator ASX Ltd, as its price sank 8.6 per cent to $64.22. US competitor CBOE is pushing to conduct sharemarket listings of companies in Australia.
ABC News
5 minutes ago
- ABC News
WA businessman Ted Powell donates $100 million to Perth's Murdoch University and animal hospital
An animal-loving philanthropist has donated $100 million to Western Australia's only veterinary medicine school, the biggest donation ever received by a university in the state. Perth businessman Ted Powell gave the money to Murdoch University, which will enable it to rebuild its veterinary school and increase the number of vet students by almost 50 per cent. Mr Powell, who made his money running a Hong Kong-based firm that specialised in the creation and sale of offshore shelf corporations in low tax jurisdictions, said he was motivated in part by his late wife's passion for cats. He said the pair, who did not have children, wanted to contribute their assets to worthy organisations. "My wife was in particular a great cat lover and ... she'd be immensely proud of what I'm doing in this project," he said. Mr Powell said he did not want anyone else to deal with the burden of deciding what to do with the money if he died. "I'm going to have to ask you to believe me but having too much money is a problem also," he said. "You can't spend $100 million when you're 74. "The motivation was, if I die that means somebody, whose wealth it is not, has to decide what to do with it and that's all wrong. "The passing of my wife was the catalyst in making that decision." Mr Powell has had a long association with the university through his Ragdoll Foundation, which provides scholarships to those unable to afford to study, and said Murdoch was "first in line" when it came to donating. "I can't change the world, I can only do one thing and I've done it and Murdoch is first in the line," he said. Mr Powell said the decision to donate such a significant sum had been nerve-wracking. "Before I made it (the decision) I was scared, and once I'd given the money over, I was relaxed," Mr Powell said. "It was like a weight off my mind, I've done it." Mr Powell ran his business for 19 years before selling and semi-retiring in Perth. After relocating to WA, he became involved in developing the Richardson Hotel in West Perth. He hopes his actions would inspire others who have come into wealth to give back and invest in the community. "I'd like to take this opportunity to encourage anyone who's been able to accumulate wealth to consider responsible ways to give back and I hope that my gift to Murdoch will inspire others," Mr Powell said. "A good education is a gift to last a lifetime." Murdoch University vice chancellor Andrew Decks said he was speechless when Mr Powell told him of his decision. "Well I had to take my jaw off the floor and bring it back up," he said. He said the donation would transform the university. "It's bringing the facilities up to world class standards," he said. The new build is expected to take about five years and will allow the university to boost the number students wanting to train as vets from 105 to 150 per year.
ABC News
8 minutes ago
- ABC News
Tassie's election repeat, phone bill stress + why Jacinda Ardern is hopeful
A new report found a bunch of phone companies have been denying customer requests when they're experiencing financial hardship. So, what can you do when you're struggling to pay your phone bill? And Tassie had an election, a hung Parliament, a no-confidence motion, an election, a hung Parliament, and now... a no-confidence motion. What? Plus, Dave's chat with Jacinda Ardern: on being optimistic, leaving the Mormon church, taking mat leave as PM, and what she regrets. Listen: 01:10 - What to do if you can't pay your phone bill 06:05 - Explaining the mess that was the Tasmanian election 10:10 - Jacinda Ardern on knowing when to quit Guest: Carol Bennett, CEO, Australian Communications Consumer Action Network Carol Bennett, CEO, Australian Communications Consumer Action Network Jacinda Ardern, former NZ prime minister Get the whole story from Hack:
