What to expect from Melbourne's 2023 spring selling season

Spring 2023 in Melbourne arrives with the Reserve Bank of Australia’s cash rate at 4.10 per cent, fixed mortgage rates for many borrowers sitting above 6.5 per cent, and median dwelling values having remained broadly flat on a year-to-date basis. These are starting conditions for a spring selling season unlike any in the past decade, as no recent spring has commenced with this particular amalgamation of elevated interest rates, subdued buyer sentiment, and a noteworthy level of pent-up vendor inventory. It is a unique confluence of factors that demands a nuanced understanding from both prospective buyers and sellers across Victoria.

The vendor-side setup for this spring is indeed unusual. A significant number of property owners who would typically have brought their homes to market in 2022 chose to hold back, navigating the initial waves of the rate-hike cycle. Many have been patiently waiting for what they perceive as “the right time” to list their properties. Spring 2023 is anticipated to absorb a portion of this pent-up inventory. Early indications and auction volume forecasts suggest that the September to November period will see an increase in listed properties, sitting somewhere in the range of 8 to 14 per cent above the corresponding spring period of 2022. This injection of supply, especially after a period of lower activity, could alter the dynamics of competition. For instance, suburbs across the middle ring like Northcote, Seddon, or even larger family homes in Glen Iris that were held off market might now feature more prominently. Likewise, coastal properties around Mornington or Geelong that saw quieter sales periods last year could see a renewed influx of listings.

Conversely, the buyer-side setup remains noticeably constrained. The borrowing capacity for many prospective purchasers at major banking institutions is currently at multi-year lows in real terms. This has translated into a more challenging environment for securing finance. Anecdotal and industry reports suggest that the proportion of attempted finance applications that are either declined outright or significantly downgraded from initial expectations sits well above historical norms. This tightening of credit impacts a broad spectrum of buyers, from first-home buyers in the outer suburbs to upgraders in the middle ring. In this environment, cash buyers and those with substantial deposits are disproportionately advantaged. This particular cohort of buyers tends to be concentrated in the more premium end of the market, typically for properties exceeding the 2 million dollar mark. This means that while overall buyer activity might be muted, certain segments benefit from a stronger financially positioned buyer pool.

Given these prevailing conditions, we can anticipate varying outcomes across different market segments in Victoria. The sub-$1 million outer suburbs, areas like Pakenham, Melton, or Cranbourne, which are often sensitive to interest rate movements and borrowing capacity constraints, are expected to be the softest segment. Clearance rates in these locales are likely to sit in the high 50s. This is an environment where properties may take longer to sell, and price expectations will need to be realistic. For first-home buyers, particularly those relying heavily on mortgage finance, this segment’s dynamics will be challenging yet potentially offer a slower pace for decision making.

Moving into the middle ring, properties typically priced between $1.2 million and $1.8 million, encompassing suburbs such as Pascoe Vale, Reservoir, or even some parts of Ringwood, will likely be choppy but ultimately functional. These areas often attract a mix of upgraders, young families, and some downsizers. While not immune to the broader economic pressures, the slightly higher price point and often more established nature of these suburbs can attract a more diverse pool of buyers. We anticipate clearance rates in this segment to be in the low 60s. This suggests that while competition will not be as fierce as in boom times, well-presented and realistically priced homes will still find buyers, albeit with a greater need for strategic negotiation. Buyers in this segment will need to be patient, and sellers need to be prepared for offers that might not reach the peaks of yesteryear.

The premium segment, encompassing properties valued at $2 million and above, is expected to be the firmest by clearance rate. This market is prevalent in locations like Brighton, Toorak, Canterbury, and even sought-after pockets of Albert Park or Kew. The concentration of cash buyers and those with substantial equity in this segment provides a stronger underpinning for competitive auctions. These buyers are less susceptible to the immediate impacts of interest rate rises on borrowing capacity, and their decision-making is often driven by factors beyond purely financial leverage. As such, these properties are more likely to see spirited bidding and achieve higher clearance rates. However, a key risk to this segment is not a thinness of buyers but rather vendor over-optimism. Sellers in all segments, but perhaps particularly in the premium market given its recent history of rapid growth, who anticipate 2021-style outcomes will likely be disappointed. The market has recalibrated, and while strong, it is not exhibiting the same exuberant growth. Vendors need to align their expectations with the current market reality rather than holding onto past benchmarks.

The practical implication for buyers across all segments is that spring 2023 presents itself as potentially the most buyer-friendly Melbourne spring since 2019. The rapidfire, often chaotic bidding environments that characterised the boom period, where decisions had to be made in seconds under immense pressure, are less likely to be the norm. For buyers who are genuinely well-prepared, this environment offers a considerable advantage. This means having a pre-approval for finance that is current and thoroughly understood, having a conveyancer engaged and ready to review contracts, and having building and pest inspectors on standby for swift appraisals. Such meticulous preparation will create an environment where buyers can comfortably write offers, undertake due diligence, and negotiate without the overwhelming pressure of being outbid in those frantic 30-second clearance windows. It is a market that rewards diligence, patience, and a clear understanding of personal financial boundaries, rather than impulsive decision-making.