Market Comment - Monday December 14th 2009

With the December market firing on all cylinders and still around 1000 auctions to go before Christmas, I think it is time to take stock of what has happened this year and also look into the crystal ball again to see where we are going next year.

Sales exceeding 1000 reported to the REIV almost every non holiday week since February Clearance rates in the 80% range almost all year. Properties under $500k have increased in price week in week out. Both first home owners and investors have flooded the market and are still ringing for help with one week to go before Christmas. The higher end of the market began recovering in May and by October we began to see record prices back into the over $2M mark.

Let’s look back to what we said this time last year:

Extract from Market comments 15th December 2008

‘All in all, properties that are in good locations that show a history of good capital growth, have an improving yield and are under $500,000 will be the hottest property for the first six months of next year. In the later half of the year, depending on the economic outlook and what consumer sentiment brings, properties between $500,000 and $1M will be the next bracket to move. Once the economy begins to recover, properties above $1M will rebound extremely well. If you are in the market for this type of property, spring 2009 may well be the last time to buy at reduced prices before a recovery in early 2010.

It has been a tumultuous year throughout the world. Next year will probably be easier to read than this one. Although some downsizing in nearly all industries is a fact that we will need to get used to, it will also be a time for opportunity. Don’t look back in 2010 and say “why didn’t I buy property last year”’

If we go back to October 2008

‘In my opinion, this can only lead to a growth in property prices. It will start in the sub $700k category and then move, slowly, into higher price brackets. Within the next 6 - 12 months, properties below $700 will begin to sell strongly. And, if we add to this the government incentive of doubling and / or tripling the First Home Owners Grant, we should see very good growth in this sector. Properties over $1.5M will always sell depending on whether the agent and vendor pitch to the correct price. Good property always sells well; average or poor properties sell at the right price and tend to fail when marketed above their correct price range.’

Even in the depths of despair during 2008 we could see that population increases, over 1000 reported sales most weeks and rents increasing steadily, were keeping the market buoyant. 2009 has shown us that quintessential elements of price movement are supply and demand. All other forces will cause a change to these fundamentals. The biggest single force is the unemployment rate and as this is slipping down again, I do not think we will see the 10%+ numbers that economists were throwing around in 2008. Interest rates tend to have a positive effect on the upward movement of price in the property market. Assuming the RBA knows what they are doing the more they raise interest rates, the better our economy is doing and the more people will pay for houses.

Overall, 2010 will bring us a fresh round of record prices. I think we will see at least 10% - 15% upward movement in the inner city and established suburbs around Melbourne. I think this is a conservative estimate as well. I think 2009 will be seen as an average growth year for Real estate in Melbourne over the coming decade. We may see a much lower rate of increase or even a slight decrease in the new “estate” suburbs as the First Home Owners Grants decrease.

Over the next decade, I believe we will see generational change in home ownership in this country. If you are an owner of property within the next decade, you and your family will always own; If you do not it will take generations to buy a family home and the deposit needed will take a lot more than a single wage.

I would like to thank all the readers of this column for their feedback and support throughout the year. I would like to wish you and your families a very happy festive season and we will be back early in the New Year.

Our office is closed on Tuesday 22nd December 2009 and re-opens on Monday 4th January 2010.

Ian James

Market Comment - Monday November 30th 2009

We have seen the first weekend since May that the clearance rate has dipped under 80%. And it only dropped to 78%. It has taken the biggest auction weekend of the season to do it. There were over 1500 reported sales to the REIV last week. This equates to about 50% more than normal. AND STILL THERE WAS A 78% CLEARANCE RATE.

The market is not slowing down; in fact it is picking up pace. Agents are already starting to book auctions for February. This, at a time when there are still 2500 auctions gazetted to occur before the end of the year.

There is quite a bit happening in the world at the moment and most of these things will impact heavily on rising house prices. Joe Hockey is primed to take over the Liberal Party, Reserve Bank Governor, Glenn Stevens, is set to give all the mortgage holders in the country a Christmas gift they do not wan to see. Interest rates will probably rise by another 0.25% this month. On top of this all our utilities are about to get substantially more expensive thanks to Mr Rudd.

Don’t forget the Emissions Trading Scheme (ETS) is simply a way to increase our cost to purchase anything that relies on fossil fuels to a point that will make alternative fuels economically viable. In other words, raise the price of fossil fuels by extra taxes to such a point that people will switch to renewable energy because it will then be cheaper.

People are not selling houses as often as they once did. Immigration is also still increasing as is our natural population growth. Our kids are staying home longer than ever. More young urban professionals want to live in smaller dwellings closer to the cities however those wanting a family are looking for the “McMansion” out in the new estates. These areas will be the ones most impacted by rising interest rates and the lack of average capital growth.

All of these things will impact on price of property over the next five – fifteen years. In Europe they have a home ownership near 25% unlike Australia which has historically been around 75%. But this will change, and I think it will change this generation. Young professionals will start to look at long term leasing rather than renting. People will need generations to purchase homes. The average young family will simply be priced out of the market.

Over the next 5 – 10 years those who can afford to purchase property should do so, and buy as many investment properties as they can. This could be the start of the “haves” and the “have nots” When our kids need $200,000 as a deposit for their first flat, if the parents do not have equity to cover this, it will be almost impossible to save this money. On top of this rents will increase rapidly in line with ownership percentages. The lower the ownership percentage, the faster rental prices will rise.

All in all, the Melbourne property market is in for another boom era. As we were saying in our market comments early last year, during all the gloom and doom; Prices of Melbourne property will grow at about 10% per annum, doubling every seven years for the next five to ten years. The exception will be in the new estate areas where growth is usually limited to less than 7%, and considering these areas have been given the artificial stimulus with the increased First Home Owners Grant, the next 5 years will probably be less than 7%

If you require any assistance in purchasing property, please do not hesitate to call us for a free no obligation meeting

Ian James