Market Comment - Monday 13th December 2010

Channel Nine news ran with a lead story on Saturday night, saying the market in Melbourne has definitely faltered and talked about the bubble bursting. The “expert” they interviewed was a reporter from the Herald Sun. The talk of only 60% clearance rate shows the market in Melbourne is lost!!

There were more auctions held than any weekend since March 2008 and the clearance rate remained at the same level as it has been since October this year. I think it was a slow news day on Saturday. The market is tilted in the buyers favour for the moment. The market is hardly in free-fall. We will not see 40% drops in property values. We will not see people “giving” away their properties. In fact, I think we will see modest growth throughout 2011 in the top third of suburbs in Melbourne.

The consistent clearance rate of 61%, and a recorded 1210 total sales for the week, is indicating we have a market which is neither hot nor cold, but rather best described as a ‘negotiators market’. This was fairly obvious when looking at the number of unreported results – 195. We purchased seven properties in the last 4 days with another 5 still under negotiation.

17 Northcliffe Rd, Edithvale– 3 bedrooms 2 bathroom house, renovated and on 822 sqm of land. Quoted $610,000 - $670,000, the auction opened on a vendor bid of 610K, however despite a good crowd there was zero activity from buyers. The agent worked very hard to get things started – going into see the vendors more than once and sending his agents into the crowd to chat with buyers whilst he did so. Finally someone offered 620K and this set the ball rolling. 2 bidders fought it out to 690K where it passed in, (despite the agent stating one more bid would probably put it on the market). The property sold via negotiation for 695K.

Taurus Rd, Doncaster East – a 4 bedroom, 2 bathroom house verbally quoting high 600K – low 700K. The auction opened on a genuine bid of 650K, In contrast to the other auctions, the pace was fast with 3 bidders and a lively atmosphere. The bidding slowed at 727K at which point the agent put it on the market and, with no other bids knocked it down at 727K.

8 Black St, Brighton – 4 bedrooms 3 bathroom, 2,000 sqm of land, and a vendor that had lived there for 38 years. A premium spot in Brighton, the agent was quoting 5Mil – 5.5Mil. There was a large crowd and seemed to be good interest, however another slow opening. I’ve never heard an agent go on so much about a properties potential before asking for bids. He seemed to be thoroughly enjoying the attention or just avoiding the inevitable pass in which was becoming an all too familiar pattern. Once he did stop talking, one buyer was willing to open on a bid of 4Mil. This opened the way for someone else to get involved, and for a moment there I did think it might just reach the quote range. However alas – no such luck. The house was passed in at 4.8Mil and was later sold via negotiation for $5,125,000.

And so the pattern continued throughout the day. Few properties sell under the hammer these days but good negotiators will make the difference in walking away from a good property and securing it for a good price.

If you are considering a purchase of property in Melbourne, please do not hesitate to give our office a call. We will be taking a short break after next weekend but our emails and office phones will be managed throughout the festive season.

This will be the last market comment for the year. We will start again early in the New Year. Our last newsletter will go out later this week. From the team at JPP, I want to wish you a safe and happy festive season.

Ian James

Market Comment - Monday 6th December 2010

Clearance rates remained at 60% on a similar number of auctions to last week. There were 1205 sales reported the REIV last week. This is substantially down on this time last year, when around 1500 properties a week were being reported all the way through to Christmas. With the biggest auction weekend of the year gazetted for next weekend, I would not be surprised to see a drop in the clearance rate.

However, if the clearance rate remains resilient at around 60% this bodes extremely well for vendors next year and means purchasers will be looking at increasing prices for property. Total sales will also help work out what next weeks “litmus test” will mean for early next year.

The REIV have also reported that this year will have been the most auctions ever, surpassing the figures for 1999. That was a year where growth in the Melbourne median had come off a decade low growth after Paul Keating’s “recession we had to have.” Interest rates were very similar to what they are now. Most of 1999 the RBA cash rate was 4.75%. Unemployment rates were dropping until after “9/11” when the World Trade Centre was attacked in 2001. Australia’s Population growth rate was rising, and even our inflation rate (CPI) was climbing. All of these indicators were similar to what we have now. In the years 2000, 2001 & 2002 we had median house prices in Metropolitan Melbourne increase 9.2%, 18.42% & 15.56% respectively, according to Valuer General Data. I would consider the last decade to have been different to the ‘90’s’ and this is the reason I do not foresee exactly the same results but would assume a trending upward of the Melbourne median price to be a foregone conclusion over the next five years.

Some sales of note for this week:

10/120 Ferntree Gully Rd, Oakleigh East. Not the best location, however from an affordability point of view it had attraction for home buyers looking for a nicely renovated 2 bedroom villa unit for the same value as a one bedroom in a better location. Quoted $310,000 - $340,000, the auction opened on a genuine bid of $310K and took no time at all to exceed the quoted range and be declared ‘on the market’ at 350K. It sold 37K above reserve for at $387,000

31 Hopetoun Rd, Elsternwick - A beautiful location – 450 sqm of land, with an original Edwardian ‘renovators delight.’

This result was outstanding and surprised even those well-educated on sales in the suburb. Quoted at $1Mil - $1.150Mil. The agent opened conservatively on a vendor bid of 1Mil. There were 5 bidders keen to get involved (with 2 buyer advocates attending), however the next bid surprised all and knocked a few out before they’d even had a chance to raise a hand. A lone voice from the back of the crowd shouted out 1.2! – And resulted in the property going immediately on the market. Only one other bidder was willing to get involved over this amount, and after a speedy back and forth battle, the final selling price was $1.350 Mil. The vendors looked very happy, and I understand the purchaser is an owner occupier who plans to renovate rather than rebuild.

There are still over 2000 gazetted auctions scheduled for the rest of the year. If you are considering a purchase before Christmas, or early in the New year, please give us a call for a no obligation chat.

Ian James

Market Comment - Monday 29th November 2010

398 pass in results were reported to the REIV over the weekend. And there will most likely be more after the REIV follow up 95 unreported auctions. We have to go back to December 2008 to see this many properties passed in on one weekend. 1197 properties were reported to the REIV as sold this week which is average for Melbourne. It’s a rough 50/50 split between private sales and those sold at auction.

It is always nice to be able to “We told you so!” And the media have just worked it out. “Market glut favours buyers” and “Savvy homebuyers set for bargain Christmas”. These are some of the headlines being used in the national papers today.

It was obvious 4 weeks ago that there would be an oversupply and that some good properties would be on the market for very reasonable process, and it is just as obvious that things will change over the next 8 weeks or so. IT WILL NOT LAST.

From the latest counting in the State Election, it looks like the Liberals have won 45 of the 88 Lower house seats. It is also being touted they may have the balance of power in the Upper House. If interest rates remain on hold next Tuesday, and the Federal politicians actually prove they can get one of their promises across the line (The National Broadband Network), we will begin to come out of the state of confusion and feel we can move on with our lives with some surety.

With surety comes decisive decisions. With decisive decisions, more people will buy property. With more people buying property there will not be an oversupply; there will be a stock shortage. Watch prices start to slowly rise in March 2011 in the top third of suburbs in Melbourne.

Obviously, the weekend had mixed results: 2/63 Wheatly Rd, McKinnon was quoted at 530-570K. It is a classic downsizer home, backing onto one of Bentleigh’s premier parks. One of 5, this 2 bedroom villa needed no effort from the auctioneer to swing buyers into action. Opening on a genuine bid of 580K - above the quoted range - there were 4 bidders eager to take part. Due to the pace of bidding the auctioneer didn’t get a chance to announce it on the market until 649K – however I’m assuming it had met reserve prior to this. The selling price was 661K to a couple of very excited girls who had just purchased it for their mother. Smiles all around!

8 Diosma, Doncaster – a nice 4 bedroom family home quoted $680K - $750K. Opening on a bid of 700K, 3 buyers were happy to compete. Again the pace was slow, and the auctioneer was forced to work hard to keep things moving. It passed in at 763K - above the quoted range, and we were told the reserve was 800K. This is a good family home worth a little over mid $700’s.

If you are considering a property purchase within the next 6 months, why not drop in for a chat. There is no obligation for our first meeting.

Ian James

Market Comment - Monday 22nd November 2010

According to the REIV we are at the start of the busiest 4 week period in Melbourne Residential auction history. Whilst there were over 1000 auctions gazetted for the weekend, as is becoming normal, many were not reported. 893 auctions were reported and we saw an average result of 59%. As an overall clearance rate for the week, this estimate will be close but probably revised down possibly 1 or 2 percentage points. Total sales were also fairly low at only 1047 reported for the week.

There are another three weeks of auctions meant to be in excess of 1000. Add this to the usual private sales for the week and we should see total sales of around 1400 per week. I would hazard a guess it may end up being closer to 1200 per week. It is definitely a buyers’ market at the moment.

However, good property still sells very well. The auction of a 3 level warehouse apartment located in Ascot Vale and was quoted at $550,000 - $595,000. Warehouse apartments have become hugely popular, and seem to sell well in all types of markets. This property in particular had a great floor plan and had some ‘wow’ factor about it. The auction was opened on a genuine bid of $500,000 and announce on the market at $605,000. There were five bidders in total, which for this market is strong competition. The comparables were showing that the property was worth low $600,000’s, the property sold at $656,000.

I notice the media are still talking about low quotes. One of the reporters even saying “if you want a fair idea of what the house you want to buy at auction is worth, add up to 15% on the advertised price and you might be somewhere near the final result”. That is absolutely ridiculous. You could end up paying 20% more than a property is worth. They still have not got it yet! The media and even government departments like Consumer Affairs still want to have a say in how a property is priced. For some reason they just don’t get it. The vendors’ agent is contractually obligated to assist only the vendor. No legislation will ever stand up to scrutiny that weakens the position of the party who is paying for assistance over the party that is not.

Furthermore the media are not really looking at one of the more important changes to legislation. Section 55 of the Estate Agents Act is being changed. The rules previously required a Real Estate agent, his relatives, or employees, to undergo a full independent assessment by the director of CAV with supporting documentation involving a written valuation by an independent Valuer if they wanted to purchase any piece of real estate their agency’s selling. The process is long winded and penalties for breach are serious.

Now the safeguards that were in place have been hand balled to the vendors solicitor or conveyancer. Most people in this profession would have absolutely no idea of what is a fair price or not. I wonder if these professions even have professional indemnity insurance to appraise the value of a home. It is bizarre that the Minister for Consumer Affairs is more worried about cutting down on paperwork than safeguarding vulnerable consumers.

Next weekend we have the State Election. Whilst the outcome may change a few things, the uncertainty may play heavily on the market. If we have anything close to a hung parliament like our Federal politicians are currently enduring then we are in for some interesting times between now and Christmas.

If you are considering a property purchase in the next 6 months please give our office a call for a no obligation chat.

Ian James

Market Comment - Monday 15th November 2010

We are starting to get used to the Saturday downpours. This is something we have not had to contend with often in the last 10 years. Although many people braved the cold and wet conditions, the clearance rate still remained relatively low at 61%. This is actually 2% higher than the revised clearance rate last week.

Properties still sold well for the week with over 1000 reported to the REIV (Private sales plus sold at auction). There are plenty of buyers but many of them are holding back much more than they have been over the past 6 months. Take Blessington St, a classically renovated art deco apartment in one of St Kilda’s premier locations. It is the type of property that always attracts a good crowd in any type of market. Quoted at 580-630K, the rain wasn’t going to deter anyone. Amidst a sea of umbrellas, 4 bidders immediately got involved. The property was announced on the market at $630k and sold under the hammer to an ecstatic owner occupier for $650k. Blessington Street Art Deco usually sells well in excess of this mark.

Further to this we did 4 deals Thursday & Friday where the agent pre-empted the negotiations and wanted to sell. This is more likely to happen when the agent is not confident of an auction outcome. Whilst the media is driving sentiment down, talking about property prices dropping, reporting the OECD thinks there is still a housing bubble, about interest rates “out of control”, this will eventually drive some vendors out of the market: those that do not have to sell. What we will find then in March or April next year is a lack of supply. With rental yields on the rise, a lack of stock in the middle of the autumn selling season will drive prices up sharply, similar to this year in March and April.

Realistically, by March 2011, the Federal and State Election outcomes should have steadied itself. Interest rates shouldn’t move much more than another 25 basis points and people will want to get back in the market. Prices will begin to rise around March or April and we should begin to see this is the figures released in Mid-year.

If you are considering purchasing a property anytime in the next 12 months, now would probably be a very good time to buy.

Ian James