Sales activity declines over April
School holidays and a number of long weekends saw gross sales across the growth areas of Melbourne, Geelong, Ballarat, Bendigo, and Macedon fall by 7.2% over April to 660 lots. Despite the April interest rate pause, there was no immediate turnaround in purchaser sentiment. In fact, buyer confidence remains fragile, with increased pressures on household finances from higher cost of living expenses and reduced borrowing capacity overshadowing rebates and incentives to enter the new home market.
Northern Corridor Grows Proportion of Sales
Despite experiencing a decrease in sales activity, the Northern growth corridor still managed to increase its share of total sales to 34%. This was attributed to a more marginal reduction, compared to the double digit falls in gross lot sales within the growth corridors of South East, Western, Geelong, and Bendigo, which resulted in their proportion of sales activity diminishing. The number of lot sales in Ballarat doubled, albeit off a very low base, however this still translated in its share of sales also doubling to above 5%.
Lot sizes in Melbourne increase
Notably, Melbourne’s median lot size increased by a sizeable 9.4% over April to 382sqm; this is the largest size recorded in a month since February 2022. While this may be attributed to the increased prominence of upgraders (compared to first home buyers) in the market, this is still smaller than the lot size generally preferred by upgraders – highlighting the impact of record construction costs. This helped the median lot price edge higher by 0.4% to $389,500, although pricing on a per sqm basis went backwards. Geelong experienced a significant decline in its median lot price of 11.2% to $363,000, however, this can be explained by the 20% shrinking in its median lot size to 336sqm.
Impact of construction costs on lot sizes
The CPI New Dwelling Index for Melbourne showed significant growth in the overall price paid by owner occupiers to construct a new home from June quarter 2021 to September quarter 2022. This growth can be attributed to supply constraints on materials and labour shortages driving up construction costs. In response, Melbourne purchasers started favouring smaller lots to reduce their expenditure on the land component; opting for smaller lot sizes meant that homebuyers could offset some of the increased construction costs. As new home prices moderate (with the help of incentives and rebates), median lot sizes are also stabilising.