Market Comment - Monday 30th August 2010

When there are over 1100 sales reported to the REIV, more than half of them auctions, then the clearance rate can be seen as one indicator of how the market is fairing. 71% of 687 auctions reported to the REIV cleared over the weekend. Volumes were above average at $366.23M and even private sales chimed in with over $300M worth of sales last week.

Over the weekend good properties attracted a lot of interest. 41 Silverdale Road Eaglemont sold under the hammer for $1.167M. Whilst the number represented very accurately what the property was genuinely worth, it was of some note that there were six bidders willing to be in the contest, 4 of them within the last 20k.

Good properties are still selling extremely well. Do not think a hung parliament, the “train wreck” US housing market or the ridiculous talk of a price bubble will stop switched on investors taking over the market place. Most investors are looking at the benefits of the Melbourne property market, not media headlines designed to sell newspapers.

The Melbourne property market has performed very well over the last fifty years, and if you look at all sensible indicators it should continue to do so. The talk at the coalface from most agents is the stock levels should have their natural increase come October and with a few more investors hitting the market we should have a good balance spring season.

Look for a rise in the top third of suburbs in Melbourne of about 5% over the next three months, followed by the Christmas hiatus and then a balance steady growth throughout next year. Factors to watch out for are unemployment rate and the immigration figures as well as housing starts and any increases to first home buyers schemes.

If you are interested in buying property think about attending one of our many seminars or call us for a no obligation meeting.

Ian James

Market Comment - Monday 23rd August 2010

There was a 75% clearance rate according to the REIV over the weekend. This was on very low stock levels due to the Federal Election. There were 550 private sales and 300 auctions last week. And over 10% of these auctions sold prior.

Neither vendors nor prospective purchasers should read anything special into the rise in clearance rate. Whilst it is nice to see the rise, it is on very low volume. We should see a rebound in volumes next week. This is not to indicate an upward trend, simply a balancing of numbers due to the Federal Election. The auction numbers are likely to begin there slow climb from winter levels into the spring frenzy. Apart from Grand Final day at the end of September and Melbourne Cup weekend, we should see turnover numbers breaching the 1000 per week mark.

Whilst the uncertainty of the Federal Election will probably concern the stock markets dramatically, the property market is usually far less volatile. Volumes may stay down a little as some investors may choose to see who will be running the country in a couple of weeks. However, neither party has really put any policies on the table that would affect the Melbourne residential property market that differently. Owner occupiers will certainly not be perturbed any more than the average Australian is.

So, if business runs as usual, then I would foresee the increase in stock coming into spring assisting prospective purchasers. As long as the stock levels do not dip, prices should remain relatively flat for the rest of the year. It would be unlikely to see any further drops from the highs of March and April. Whilst the market began to climb out of the doldrums in November last year, it picked up to freight train speed by mid-April; it has again slowed to a sustainable pace. If we average the growth over the past 12 months, we are probably in a sustainable range for long term growth.

There will be some angst whilst the Election is worked out and Victorians have another election coming up in November as well. This will also add to the stabilisation of price growth. The Reserve Bank is unlikely to keep interest rates on hold for too long, unless the banks raise their rates independently of the Federal Reserve, and this will also mean a more stabilised growth for property in Melbourne.

Rental yields will also factor into price movement in Melbourne. Melbourne has the lowest rental yields of any capital city in Australia according to RP Data. This is caused somewhat by the strong capital growth over the last 12months. During the stabilisation of price growth, yield will naturally creep up, making Melbourne residential property both a good long term growth prospect with a growing rental yield.

Overall, buying good property in Melbourne over the next five years will depend as much on property choice as it will on your negotiation skills to earn excellent growth and good yield with your investment. We are running several seminars over the next couple of months. We will be looking at market trends, property assessment and negotiation skills. We will also have experts in finance and accounting at different seminars.

If you are interested in attending one of these free seminars please register at our website or call us on 9523 1054

Ian James

Market Comment - Monday 16th August 2010

With Clearance rates well and truly entrenched in the mid to high 60’s for the past several weeks, I think it is safe to say we can expect these levels to continue until the spring selling season begins in October. The REIV is reporting an increase of nearly 40% in turnover this year compared to this time last year.

In a robust economy, if we don’t see a slowdown in property price increases then inflation will run rampant. We have already seen increases over the past 12 months above 20% but if you look over 5 years the rate is less than 10%. When looking at property price increases or decreases for that matter, you must look over a reasonable time frame.

To assume to buy somewhere that has not done well in the past 6 months on the assumption it must do better over the next 6 months is fraught with danger. This is what many property “spruikers” will tell you. They sometimes show you how easy it is to buy in a place where others are not purchasing or where there are a lot of people selling because they paid far too much. Think the reasons through very carefully before committing to a strategy like this.

With the market the way it is now, negotiation becomes your key to short term capital gains. Properties can sell 10% below comparables or 10% above comparables depending on how well the deal is negotiated. Once you have established what the property is worth, your ability to negotiate with the agent will become the most important part of whether you will be ahead of the capital growth curve, or behind it.

In a sellers’ market, the selling agent will try to run to auction or wait until he has multiple offers and then try to play one prospective purchaser off against the other. In a balanced market he or she does not always have the luxury of waiting for multiple offers. When a selling agent is calling you on a Thursday before auction, to see whether you want to purchase the property prior to Saturday, you know he can’t have too much competition. If you do not buy prior to auction and the property passes in then you are in a very good position, as long as you know how to press the advantage. If, however there is another competitor that the agent didn’t even know about, then you may be in a much worse position than you would have been if you had started negotiations on Thursday. This is where a seasoned negotiator will save you tens of thousands of dollars.

Some selling agents have been practicing their craft for many decades and if this is only your tenth or fifteenth property you have negotiated, then you will probably be a distinct disadvantage. However, there are some ways to balance the playing field. I regularly speak at seminars and Home Buyers Expos about negotiating one on one with Real Estate Agents. We have three upcoming events across Melbourne that are free to attend. (See our home page at www.jpp.com.au )

Property purchasers should always be looked at as long term investment and as such the performance should be looked at in the same way. If you are interested in buying property please do not hesitate to come in for a chat or alternatively come to one of our upcoming seminars.

Ian James

Market Comment - Monday 9th August 2010

There were 147 (14.5%) few sales reported to the REIV last week than the week before. Auction numbers were down by 55 (8.8%) and the clearance rate was at 67%. These numbers are similar to those throughout July but down on the first week of August.

Apart from the obvious “PRICE BUBBLE” theory, there may be some other reasons for these results. Firstly, the average person in the street does not like uncertainty. We are currently in the middle of an election campaign that is difficult to call. If it were a forgone conclusion that one or the other party had the election sewn up then I don’t think this could be a contributing factor.

Secondly, we have the media headlines “Forever blowing bubbles” (The Herald Sun 9/8/2010) or “Agents find room for gloom” (The Age 8/8/2010). Continual gloomy headlines can have a “self-fulfilling prophecy” effect. The general public, who don’t fully understand the market, keep reading gloom and doom similar to Professor Keens’ “40% property price drop” statements starts believing the hype and becomes nervous in the market place. This leads to lower clearance rates and then more headlines about potential property price bubbles.

Lastly, we have the obvious issue that we are in the middle of Melbourne winter. A fairly cold and miserable one at that. This is traditionally a slow time for the real estate market.

We have talked about this quite a lot in recent weeks. When you look at too small a time frame, then it is difficult to get proper perspective. There have been 17,144 auctions reported to the REIV this year as compared to 9,287 for the same time last year, according to Robert Larocca of the REIV. With this sort of sales increase a small correction is obvious. But to assume a full scale slide into another financial crisis is probably a very silly.

The RBA has issued statements saying they do not believe there is a price bubble. Over the past 30 years property prices have steadily increased by about 10%p.a. And there is no reason to doubt this won’t be the case for many years to come.

It is difficult to imagine that with a housing shortage that everyone agrees we have, that property prices will drop anytime soon.

If you are considering purchasing a property please do not hesitate to call and make an appointment to come in and have a chat.

Ian James

Market Comment - Monday 2nd August 2010

The weekend saw a return to the “70’s” for the auction clearance rates. Even though we are still seeing auction numbers in the 500’s (561 according to REIV) the clearance rate has strengthened. Throughout July we saw an average close to mid-500’s whilst last year saw an average of about 330. However, we need to look across the market and we can see that total sales are down substantially. Last year according to REIV there was an average of 1056 sales with a total of 4225. This year it has been 938 with a total of 3752.It will be interesting to see how the market will perform over the next 8 weeks.

We know the market is likely to pick up in October, but it is August and September that will either galvanise the discretionary vendors into action for the spring or see them sit on their hands until Christmas. This performance may well be the difference in another 5% rise in property prices before the end of the year or reversal of the tremendous growth we have seen in the past six months.

And it is the opposite of what you might think. If the clearance rates remain low, the media keeps reporting about the bubble bursting, and properties not selling; this will be the cause of discretionary sellers not putting their properties on the market. We already know that buyers are flooding into the market. Whether it be first time investors still confused with the stock market, home owners who have done very well over the past few years upgrading for their family home, or the down-sizer selling off the family home to move to a townhouse. Either way, we know the buyers are definitely out in force. If the market is quiet over the next eight weeks I would foresee a strong sellers’ market for spring. There will not be enough stock to satisfy the potential purchasers.

Over the weekend we saw quite a few properties sell well with one of the most unusual auctions I have been to of late. In Caulfield South yesterday in brilliant sunshine the Auctioneer of a villa unit decided to run the auction inside the house. People were crammed in the study, lounge room, kitchen and hallway trying to see what was going on. It was like trying to do an auction over the phone. There were three people bidding for the property and it sold at an acceptable price to the vendor. (It was declared on the market and sold two bids later). I thought this unusual as the auctioneer is an exceptional talent that usually whips the audience into a frenzy. He is quick witted and his auctions are usually fun. I thought yesterday’s was a relatively lacklustre affair that could have been better had it been held outside.

We have been overwhelmed by requests for my speaking notes on negotiating with Real Estate Agents, and also been asked when we are doing some more talks. We have just organised another three seminars over the next month, at Caulfield, Southbank and Williamstown where I will again speak on negotiation and also answer questions. These seminars are already filling fast so you must register by calling the office on 9523 1054 or email to enquiry@jpp.com.au
Ian James