The year 2012 was a different time in Melbourne: The Age was still a broadsheet, smashed avocado was just a trendy breakfast dish (and not a symbol of financial failure), and a house in South Yarra cost $766,000. But then the boom began.
Fast-forward five years and buyers need about $1 million more to get in to the suburb in 2017. The median house price in South Yarra has rocketed to $1,780,000 since the boom started in 2012 – a 132.3 per cent increase.
The suburb, and its inner-city neighbours, are the clear winners of Melbourne’s recent property boom lottery. Houses in Middle Park, Parkville, Toorak, South Melbourne, Armadale and Windsor have all doubled in price since March 2012, Domain Group data shows.
Although Melbourne house prices have undergone a series of boom cycles in the past few decades, the latest consistent uptick started about five years ago in early 2012, following interest rate cuts in November and December 2011.
“The lower interest rates just lit the fuse of something waiting to happen, there was a lot of latent price capacity in the market,” Domain Group chief economist Andrew Wilson said.
But Melbourne was going through an economic rough patch at that time, which meant not every sub-market was ready to boom following the rate cut. Dr Wilson said the shakeout of the manufacturing industry – the anchor of the working class and the budget price suburbs – held the lower end of the market back with jobs security concerns.
In contrast, the higher interest rates that held the prestige market back were quickly dropping, with the Reserve Bank cutting the official cash rate again in May and June of 2012. Any lingering fear from the GFC had also subsided for the wealthier end of town, Dr Wilson said.
“Early on in the boom, it was the higher-priced inner suburban suburbs that really took off strongly,” he said, adding that it was the opposite case north of the border in Sydney, where budget suburbs to the west led the pack.
At a city-wide level, house prices have increased almost 60 per cent since the boom began, from a median of $530,774 in March 2012 to $843,674 in March this year. The lower end of the market has since played “catch-up mode” in the more recent years of the boom, Dr Wilson said.
Jellis Craig’s Nathan Waterson said the biggest change to South Yarra had been the influx of buyers taking advantage of the strength in areas such as Balwyn and Glen Waverley to trade up into the prestige postcode.
“We’ve seen owners of those homes in the east who would not have been able to afford [South Yarra] before, but they are cashed up and want to enjoy closer proximity to the city,” Mr Waterson said.
“Particularly with homes in that $1.5 million to $3 million bracket, which are largely single fronted cottages, they are in huge demand from downsizers.”
In Middle Park, an investor who bought an Edwardian rental property in September 2012 last week walked away with almost $1 million in that time. The owner only made cosmetic refurbishments to the home in that time, according to Michael Szulc of Cayzer Real Estate, who sold the property.
Domain Group data shows the three-bedroom home, with no parking, traded in 2012 for $1.15 million. It sold after auction at the start of the month for $2.01 million – a $860,000 gain in less than five years.
“Of course there’ll be some tax to pay on way through, but there’s not too many investments that can turn that sort of money around that quickly,” Mr Szulc said. “It’s a classic case of how the market has boomed in Middle Park.”
The story Five year boom: Suburbs with best price growth since 2012 first appeared on The Sydney Morning Herald.