Aspiring homeowners who want to enter Melbourne’s overheated property market have to contend with predicted price increases this year. This spells bad news for aspiring homeowners who have to deal with more stringent lending rules, low income growth, and rising rents.

According to the Domain Group’s rental and house price report, house prices in Melbourne have grown every quarter over the last four years, with the latest 3.6% rise pushing the city’s median to $795,447.  

This time last year, the median house price was $719,486—a jump of 10.3% over 2016. Meanwhile, growth from 2015 to 2016 was an incredible 14.5%.

Units have also experienced a rise in prices, with the median jumping 2.3% to $459,181 over the December quarter.

Dr. Andrew Wilson, senior economist at the Domain Group, said strong growth in the city’s lower and mid-priced areas, low to stagnant wage growth, and rising rents would make it more difficult for first-home buyers to save for a deposit. Moreover, strong migration and demand from offshore investors would continue to drive prices up.

Daniel Cohen, co-founder of First Home Buyers Australia, told the Domain Group that many first-home buyers feared prices would continue to rise. As a result, many bought as soon as they had enough for a minimum deposit.

Cohen also expects first-home buyer activity to decline in 2017 to 2018.

Strong market performance means more properties have gone into auction, which is hard for younger buyers who have to compete with more moneyed developers and investors.

Duncan McPherson, sales director of Nelson Alexander Brunswick, recommends that younger buyers target older-style units if they want to get into the property market faster. For roughly $500,000, first-home buyers can afford a villa unit or two-bedroom unit in a small block in the inner north, such as Brunswick, Northcote, Thornbury, or Coburg.
 

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