Market Comment - Monday 25th October 2010

Super Saturday has brought us exactly what we assumed would happen. Over $840M worth of property changed hands last week according to the REIV; nearly $600M at auction over the weekend. With over 1100 auctions gazetted over the weekend, the REIV reported a clearance rate of 68%. This means that although numbers of property jumped up the level of demand jumped to maintain the high 60% clearance rate.

Most of the sales as expected were in the range of $400,000 - $1,000,000. The above $1M range clearance rate was down near 64% and the above $2M lower still. Most buyers are looking for good long term investments and they see this in the lower end of the market. The market is not as full of surprises as it was this time last year or even earlier this year. Most property auctions we attended on the weekend went at prices that were expected.

6/31 Abinger St, Richmond is a good example of a ‘set and forget’ investment. Well located, the apartment is renovated with 2 bedrooms and car parking. The agent opened on a vendor bid of 450K, it was a slow start, and only after a second vendor bid did the auction gain pace. Announced on the market at 530K, it sold under the hammer at 551K. This was a good property that a fair and reasonable price was achieved.

1/17 Gilles St, Hampton is the type of property that appeals to a wide range of buyers – investors, downsizers as well as young home buyers. A very well located 2 bedroom, low maintenance unit brilliantly located an easy walk to the Hampton Street shops and beach. Quoted at $525K-$575K, The auction opened on a genuine bid of 550K and with 5 bidders competing there was no lagging in pace. The auctioneer held back from announcing it on the market until 650K – a fair way from the price quote – however there was no slowdown in the bidding and it could well have been on the market for some time. Two bidders were still active over the reserve and it was finally knocked down to a young couple at 660K. Again the price was not unexpected. We had estimated $640k - $660k.

The market is sitting vey evenly balanced. With more stock coming on over the next 6 weeks before the Christmas hiatus, it will be interesting to see what level of buyer participation will ensue. It is fairly obvious that many people still see property as the best investment. With the Aussie dollar continuing a spectacular climb, with property prices seemingly levelling out and fuel costs also on the decline, nobody is sure of the Reserve Banks next move.

Investors are driving the lower end of the market. Most are feeling fairly confident about future growth in the below $1M sector. If you are considering a property purchase please feel free to drop in and see us. Our first meeting is obligation free.

Ian James

Market Comment - Monday 18th October 2010

Who says we are into spring. Mother Nature certainly reminded us who is in charge on Saturday. The freezing temperatures, blustery winds and intermittent rain, sleet and hail made for interesting auctions on Saturday. A 68% clearance rate again this week shows us a balanced market outcome for both vendors and purchasers.

There were several interesting auctions this weekend:

The auction at 1/35 Stewart Street Ormond; a lovely 10 year old, 3 bedroom (third bedroom could arguably be classed as a study), 2 bathroom, single storey villa unit. The agents were quoting the property at $700,000-$770,000. Over 100 people braved the cold. The bidding opened on a genuine bid of $750,000, the property was announced on the market at $830,000, there were 6 bidders in total fighting it out and the property sold for $997,000, three of these bidders were over $990,000. Twelve months ago, the back unit of this development sold for $740,000.

At the lower end of the price bracket 6/26 Lillimur St, Ormond was a beautifully renovated apartment with a large courtyard which stood it out from the crowd. The agent had been quoting ‘mid 400K’, however a bank valuation our purchaser had authorised prior to the sale had come in at 475K which was in line with comparable sales in the suburb. The auction was very poorly attended – only ten people in all, however again this was likely due to the unusually cold temperatures. The agent opened the bidding on a vendor bid of 420K. 3 bidders were active at this auction. After two discussions with the vendor, the agent announced the property on market with our bid of 460K. No further bidding resulted and we purchased it on reserve – some 15K below bank valuation.

The REIV released the September quarter medians over the weekend. Metropolitan house price movement was 0.9% and units were 0.3% for the September quarter. For all those who are seeing this as the bursting of the bubble, please look at numbers across a reasonable period. In the past 5 years the median has had an average movement of 9.7% p.a. This should sit around 10% and therefore I can see a slight rise towards the end of the year.

Stock levels also played into the equation. If we take Black Rock for example, there has been less stock on the market with only 30 sales recorded this quarter - 14 of which sold over 1Mil - compared to 38 last quarter - 20 of which sold over 1Mil. Hence the reason I caution against putting too much emphasis on median price data without taking a deeper perspective.

The above $1.5m range is the softest market segment and the new estates will begin to falter next. However the $400 - $1.0M range will be the powerhouse over the next five years. This will be driven by investors and people buying their second homes. This demographic is the least affected by changing interest rates. Whilst overall averages may drop or be skewed somewhat, the better properties in good locations will appreciate very well in the coming years.

If you are considering purchasing a property in the next 6 months please give us a call for a free, no obligation chat.

Ian James

Market Comment - Monday 11th October 2010

The atmosphere was a little more tentative on Saturday in comparison to last weekend. With a clearance rate of 68% many people look at this and worry about the market. In fact there was the highest volume, dollar wise, of property reported to the REIV since mid-June. You have to go back to early June to see the numbers bigger. There were 1175 properties reportedly sold last week.

Interest rates remained on hold this week, and this never does much to buoy up the pace of the market. Contrary to common perception when interest rates remain on hold prices also tend to stabilize and buyers often feel they have more time to assess and negotiate purchases. When they go up it tends to create a sense of urgency – buyers want to purchase before they go any higher thereby increasing demand, however vendor’s who don’t ‘need’ to sell hold off not wanting and buy into a rising market.

It was not surprising then to see many of the auctions we witnessed over the weekend pass in and were later negotiated.

All successful post auction negotiations count towards the published clearance rates as SOLD, and in a fickle market where there is still an element of uncertainty in the atmosphere, most properties listed for auction will sell in this manner.

We had an interesting experience at an auction in Murrumbeena. 18 Adelaide Street is a beautiful period home although in need of work. A good crowd attended but there was little interest from buyers. One punter opened the auction with a genuine bid of 900K – well below the property’s reserve. The agent ‘vendor bid’ over this figure several times to reach $1.15M. It was at this point we entered the fray. Craig Cox, the auctioneer, took our offer and could get nothing further from the crowd and finally, after an unreasonably long period of time, announced it had passed in to us. Yet as we started to walk towards the house to enter into negotiation another potential buyer raised his hand to bid.

Craig Cox immediately asked his colleagues to confirm whether he had knocked the property down before the bid was made. All in attendance agreed that he had. To the auctioneer’s credit, he immediately explained the position to the prospective purchaser, that it would be unlawful for him to reopen the auction, and that he would negotiate with us first. If we did not reach agreement, then he could be consulted.

The prospective purchaser was furious, but Buxton’s did a very good job to handle the situation. A deal was struck and the other prospective purchaser was literally “left out in the cold”. He was turned away from the property without the option to be involved in the negotiations at all. It’s important for purchasers to understand their rights when bidding at auction. If a property does pass in to them, the rules they were bidding under during the auction no longer apply - buyers can now negotiate on all elements of the contract including settlement dates or make an offer subject to a building inspection for example. The vendor doesn’t have to accept of course, however the highest bidder has first right of negotiation at the vendor’s reserve - more importantly the agent is unable to deal with anyone else until he has finished dealing with the highest bidder. Therefore if property does look like it’s going to pass in, it’s important not to hang back but make intentions clear and get in the box seat.

88 Emo Rd, Malvern East had been quoted at $1-$1.1M. Again a good crowd of around 30-50 people were in attendance. The bidding opened on a genuine bid of $1M and unlike the other two auctions 2 bidders dominated. It was soon announced on the market at 1.2Mil – (well past the quoted price). Once a property has met the reserve the auction takes on a new and stronger pace. With aggressive bidding the property was secured for $1.210M. A very healthy result for this type of home.

Anyone who thinks buying at auction is as simple as putting up your hand is sadly mistaken. Anecdotally, only about half of the properties that are not sold prior to the auction day actually sell under the hammer. The rest are negotiated one on one with the auctioneer. By the way this person is usually the most experienced negotiator in the selling agents company.

Anyone thinking of purchasing a property this year can contact us for an obligation free meeting. We will explain how we can level the playing field.

Ian James

Market Comment - Monday 4th October 2010

Spring is in the Air!

Spring has sprung!

Any more clichés we can think of?

With a 74% clearance rate on nearly 500 auctions, another 450 private sales and with some agents deferring auctions because of the greatest day in September, well October, since 1990, the market is well and truly alight. Agents all over Melbourne are talking about buyers flooding into the market. Stock will not be enough unless a lot more vendors decide to sell.

Tomorrow the Reserve Bank is most likely going to raise interest rates by 25 basis points. Even if they don’t the banks probably will raise our rates anyway. If the RBA does raise interest rates by 25 basis points, there is a better than even money chance banks will raise rates more. It is so difficult for banks like the Commonwealth to make ends meet, that they are bitterly complaining that the cost of funding loans is going up so they can’t make enough profit. $6.1 Billion isn’t enough for the bank. This is an increase of 42% on last year’s results.

Now that I have had my whinge about banks gouging $3.1 Billion in fees, we need to discuss what will happen in the market. Firstly, interest rate rises do not have the same effect on the higher, over $1M, range as they do to the below $1M range. Most people who are purchasing over $1M will actually have smaller mortgages, as a percentage of value than those in the $500k range. This is usually because they have made money on previous properties.

The market below $400k made up of first home buyers may slow down a little. Certainly new estate suburbs will find buyers have lower limits to spend on their homes. We should see another fall in the median prices in new estates as builders sharpen their margins to continue to attract business. This always has a fundamental effect of lowering the established market in places like Melton, Tarneit, Werribee, Pakenham, etc. The average loan size for first home buyers is $284,500 according to ABS June 2010.

The market between $400k - $600k which is full of private investors will actually begin to heat up. With the advent of owner occupiers having to save more money before purchasing, the pressure will be increased on rental returns. Investors will want a little more to offset the increase in interest and there will be more people having to rent. The Melbourne rental market is already very tight. Well, it is about to get a lot tighter!!

Price! Inner city suburbs, the most popular place for investors will continue to steadily rise. Rental returns will strengthen, property trusts are slowly gathering momentum again and may put pressure on stock levels and we are still well short of a balance in supply and demand. Whilst currently a good, well positioned, two bedroom apartment in a suburb within 10km of CBD is currently worth between $500k & $600k; it will only take about 6 years to reach $1M. This will occur faster if the interest rates continue to rise due to the fantastic economic growth of our country.

The over $1M market is steadily gathering momentum and tomorrows potential interest rate will do nothing to dampen this. If we assume the board of the RBA are doing their job, then interest rates usually only rise when the economy of the country is on the rise. The upper end of the market is tied far closer to the performance of the economy than the lower end.

If you are interested in purchasing property in the near future, why not drop in for a chat. There is no obligation nor cost for the first meeting.

Ian James