Market Comment - Monday 27th September 2010

Tied election results! Tied AFL Grand Finals! What’s next? Balanced property markets? What will happen to the Melbourne auction scene next weekend? We know there are several of the larger franchises meeting this morning to consider their options. Do we postpone? Do we go ahead anyway? It will be very interesting.

In the Melbourne property market, there were still healthy numbers of private sales last week, however only a handful of auctions, almost all of which sold. The open for inspections on Saturday morning were absolutely packed with queues forming outside some stand out new property listings.

For those of you left bereft of emotional control by Saturday evening, get ready for one of the most balanced markets seen in Melbourne. Interest rates are almost sure to go up on Tuesday, just how far will be the question. Even if the Reserve Bank lifts only 25 basis points, there is reasonable market expectation that the banks may grab another 10 or 15 basis points as well.

The US economic commentators are now saying there will not be a double dip recession. China is looking to ramp up production meaning commodities will continue to rise. Australian cashed up companies are looking to expand overseas as the US Dollar remains so low and the Aussie Dollar so high.

If we look at all these factors then our economy is going to boom. Normally in a boom economy property prices rise strongly with rising stock markets. However, money is not as cheap as it was to borrow twelve months ago, stock levels are anecdotally lower than normal for this time of year, and the investors making plenty of money from the Aussie commodity boom will want to buy property.

What we are about to see is fewer properties on the market, but with fewer people trying to buy them. Those with property already who are able to leverage that into the purchase of new properties are going to be the real winners. I believe we are going to see the start of the two tier property market.

The properties that are in well located zones, with good infrastructure and are popular with owner occupiers will become stellar investments. Those that are in the new estates will remain somewhat affordable and stagnant (property price growth), because of a lack of new first home buyers being able to borrow money.

All in all it will be very interesting times in the property market over the next 6 – 12 months. There will be plenty of capital growth in some areas and very little in others.

If you are considering a property purchase, please feel free to call and have a chat.

Ian James

Market Comment - Monday 20th September 2010

The world keeps ticking along at quite a pace. Clearance rates over 70%, whilst not as high as last year, still offer solace for most vendors. Only 4 properties short of the 1000 total sales for the week (REIV reported a total of 996 sales last week) and with the AFL grand final stopping most real estate transactions for a week, I think we will be in for an interesting spring season.

Most agents are reporting dwindling stocks in the top end (over $1M) but the levels for $400k - $700k, the market of choice for savvy investors who want to make money, are beginning to pick up a little; so say the selling agents. If this comes to fruition, prices should only grow slightly coming into Christmas, before another pick up in February 2011.

Where is the Aussie dollar going and what does it mean to the property market? Our interest rates, whilst historically low, are extremely high by world standards. Our wealth is not based on financial markets like Japan or Great Britain, but on tangible resources that we can sell to emerging giants like China and India. The massive US economy is slowly awakening again, and people are beginning to take money out of US Bonds, always seen as the safest place to park sovereign capital and begin to invest around the world. Much of that capital is going to land on our shores.

The Aussie dollar will soon reach parity with the Greenback and may well surpass it, and whilst this is great if you wish to take an overseas trip or buy imported goods, it is not fantastic for our exporters. And currency is an incredibly volatile medium. It can move massive amounts solely on confidence.

Tourism will also play a huge role in Australia’s economic growth. One Chinese airline has announced massive increases in the number of trips from China to Sydney and Melbourne. Whilst the Japanese tourists are dwindling, it will be the Chinese middle class that will reinvigorate some of our regional tourist destinations.

With the growth in our economy almost assured, we need to look at what this will do tho the property market. There will be more wealth created through our economy than almost any time in recent memory. This will be channelled into both the stock market and the property market. Over the next 5-7 years I would predict the top third of suburbs in Melbourne will have doubled in value. This will not relate to the Melbourne median house price which is still largely bound to the “New Estate” areas as they grow. This is an area that we can foresee only a growth of around 5%-8%, or doubling in 10 – 12 years. Regional Victorian towns will continue to prosper at the 7% or so mark, but if the government starts to bring high speed transport to these centres, such as Geelong fast trains in 30 minutes not 60 minutes, and then opening up Ballarat, Shepparton, Mildura and Bendigo; we could foresee far greater capital growth in these centres.

If you are interested in purchasing property in Melbourne, either as an investment or to live in, please do not hesitate to contact us for a no obligation meeting.

Ian James

Market Comment - Monday 13th September 2010

612 auctions delivered a 70% clearance rate with 575 properties selling privately last week. Another week of over 1000 reported sales to the REIV. Investors are still a strong influence on auction outcomes in the lower end of the market. Good investment properties between $400k and $600k still remain the strongest contests in the market due to their potential good value.

Everyone is comparing this year to last year and talking down the “spring” selling season. It hasn’t even started yet!! Has everyone forgotten the AFL final series? Traditionally the busiest weeks of spring are the third week of October, skipping Melbourne Cup weekend and then flowing through to about the second weekend in December.

This weeks 70% clearance rate compared to last year’s 83% is noteworthy for another reason. Total reported sales numbers were down 24% on this time last year, yet $turnover was down only 11%. We should see a relatively quiet 2 weeks whilst Collingwood makes its way to the AFL premiership, followed by a flurry of listings in the first two weeks of October. If stock levels don’t pick up then we must assume property prices will rise toward Christmas.

The Domain put out its “Property Review” over the weekend. And, as I have already had a number of enquiries about the worst performing apartments over the last five years, I have contacted The Age for a “please explain”. I do realise these figures are supplied by the REIV, but it would have been thoughtful to check at the very least the suburbs that you are going to use in your highlights page. I have not been through all the figures, but the summary on page 7 showing the least 5 year growth for apartments is totally inaccurate, if they are trying to show annualised growth.

For Toorak to have had an annualised growth over five years of -17.3% and to have a current value of $681,000, the median in 2005 must have been $1,760,433. Considering in 2004 it was $562,500, this would have represented a jump of 212.97%. I think somebody may have noticed this. Overall, all 10 of the suburbs listed with negative growth, have according to REIV published figures had a positive growth.

Statistics can be extremely useful and we use them all the time, but never take every published figure for granted. It could mean something completely different to what you thought. If you are interested in purchasing a property in Melbourne, please do not hesitate to give us a call for a chat.

Ian James

Market Comment - Monday 6th September 2010

What a mixed week!! 72% clearance rate over the weekend and nearly 1000 sales for the week. The turnover exceeded $600M for the second week in a row. Sounds like people are moving on with their lives despite the AFL finals and the absolute farce our federal election process has become.

Whilst the election of the century progresses to see whether Julia Gillard will out bid Tony Abbot to form government for what will probably be less than 12 months, investors have begun buying strongly again. There is an old adage to remember when purchasing Real Estate: When you know you are going to lose, stop bidding!! You are only elevating the next comparable to the property you go after next. I wish Julia and Tony understood this concept.

According to RP Data, Victoria has around 40,000 dwellings on the market, with about 10,000 new each month. This would usually mean with the expected lift in stock levels in October, prospective purchasers may have an easier time than usually. But anecdotally, after speaking to many Melbourne Real Estate Agents within the 20km radius of the CBD, there is nowhere near enough stock coming onto the market to supply the usual influx of purchasers.

We know the oversupply of stock in the $750k - $1.5M during winter has rebalanced itself due to lack of new listings, and the inner city apartment market under $500k, a staple product for first time investors, has all but dried up. If we do not see a dramatic influx of new property, we are likely to see price increases of 3- 5% on 1 and 2 bedroom units, that are well located, during October and November.

The massive jump in March/April and the rebalancing in July/August have basically wiped each movement back to neutral and this means a further jump of 5% during the spring selling season would not be abnormal. As an unfortunate consequence we will probably see another interest rise from the RBA, probably October or November. I would be very surprised if we see a rise this week as unemployment figures and housing finance are not out until after the RBA meets.

If you are considering a property purchase please do not hesitate to give us a call or come in for a chat. There is no obligation and our first meeting is free.

Ian James