Melbourne's housing market is currently leading the downswing amid the COVID-19 outbreak, reporting price drops for the third consecutive month in June based on CoreLogic figures. What could be behind this?

Melbourne closely follows the price movements in Sydney. This time, however, Melbourne is leading the decline, reporting a 1.1% monthly and 2.3% quarterly decreases in June.  This is compared to the relatively muted drop in Sydney at 0.8%.

Eliza Owen, head of residential research at CoreLogic, said that historically, it is not uncommon for Melbourne to report higher capital gains or worse price falls than Sydney.

"The most recent upswing before COVID-19 also saw Melbourne growth rates peak higher than in Sydney. The Melbourne quarterly growth rate peaked at 6.4%, compared with 6.2% across Sydney," she said.

Also read: Small Decline In House Prices

What makes Melbourne more volatile than Sydney amid the coronavirus outbreak? Owen said markets with higher incomes, more indebted households, and more active investors are more exposed too changes in economic conditions.

"High levels of investment are also evident in the Melbourne market, which may be contributing to volatility, though this is present in Sydney too," she said.

Figures from the Australian Bureau of Statistics show that investor lending has comprised, on average, 32.3% of total mortgage lending across Victoria for the past five years.

Owen said the demand shocks brought about by the slowdown in employment and migration could be another factor behind the significant price falls in Melbourne. Since the onset of COVID-19, Victoria had the largest decrease in payroll job positions as a portion of jobs.

Melbourne is also highly vulnerable to the closure of international borders, given that it has the highest volume of net overseas migration in 2019.

"Amid this unique, engineered downturn, the level of government stringency has been the key determinant of economic performance. The longer businesses and households are subject to social distancing, the greater the impact will be on the housing market," Owen said.