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

Market Comment - Monday 8th November 2010

Clearance rate plummets to 61%! What will happen to the property market?

Simple, it will slow down for the next six weeks then take off again in March next year. Good property is still selling very well at all levels of the market; from the multi-million dollar mark to the excellent investment options that are out there.

45 Dickens Street in Elwood sold under the hammer for $3.335M after 4 separate bidders fought out an epic battle. 800 sqm of land with a beautiful period home. On the other end of the scale, 5/202 Lennox Street Richmond, a delightful 2 bedroom renovated apartment, quoted low at $450k+ (this style of quoting is soon to be outlawed) went on the market at $520k and sold under the hammer for $539k. A very good price for any investor.

There are now 4 main factors slowing the market down. All of which are temporary and will probably be low priority factors by February or March next year. Then the market will do what it does every time our economy goes into overdrive. Prices will sky-rocket.

We have federal politicians who have no idea how to handle the parliament yet. This year’s election still has no real winners. And this makes the average mom & dad nervous. Wait until we have a bill that Julia Gillard really needs to get passed. If Ms Gillard needs to “buy” the Greens vote, but can’t afford it, then she may have to compromise with the Liberal party instead. That will make for very interesting governance!

Secondly, we have a State election here in three weeks, and the commentators are predicting another hung parliament. Won’t that be fun!! As many voters move away from the Labor party, unfortunately some of them vote for the Greens. If the Greens candidate does not get up then the vote goes back to the Labor party through preference distribution!!

Thirdly, we have interest rates going up. They have reached 4.75% and this puts them in an “average” category. They are not excessively high nor are they historically low. This is the greatest indicator of where price will go in the short term. As our economy strengthens, the RBA cash rate goes up and house prices increase. Whilst there is always a short term hiccup, overall property prices will rise sharply: probably starting about March next year.

Finally, the banks themselves are the fourth factor. When was the last time three out of four banks did not put up their own variable rates in the same week the RBA raised the cash rate? Only CBA have bumped their rate and the press are eating them alive. The indecision of the other “three pillars” will also be weighing heavily on people’s minds.

All these factors, except Australia’s growing economy will be sorted out by early next year. There is now a six week window for canny investors to get into the market before the jump in the first half of next year. If you purchase well now, you should have excellent growth throughout 2011.

If you are interested in purchasing a property this year please give us a call

Ian James

Market Comment - Monday 1st November 2010

With the rain on Saturday not able to dampen too many spirits, the market again proved that it is somewhat reluctant to falter. Well over 850 sales were reported to the REIV last week even with only 354 auctions clearing at a reported 67%.

Whilst many of these properties passed in near the top of their quote ranges the better auctioneers were able to close the deals getting a little more for their clients. 44 Wheatley Road Bentleigh, quoted $700 – $750k passed in at $770K. The auctioneer’s strategy paid off after getting another $10K and selling the property for $780k. This is not UNDERQUOTING, this is good selling agent negotiation. If you were the vendor and the agent was able to get another $10,000 for you, wouldn’t you be happy! The would-be purchasers outside seeing the property passed in above the quote range think this is underquoting. It is not! The vendor has spent his money well on hiring a professional agent who knows what he is doing.

Minister for Consumer Affairs, Tony Robinson MP, has had some very bad advice. He continually tells Victorians that he is “creating more confidence in the industry”, by trying to “hamstring” selling agents who are contractually obligated to assist the vendor. Is this minister going to ask purchasers to do their own building inspections or pest inspections in order to save money? Is he going to tell defendants in court that they should represent themselves and he will see if he can get the plaintiff’s solicitor to help them out? When you are negotiating $500,000 contracts, both sides need representation. A vendor uses a solicitor for the legal paperwork and an agent to negotiate, why isn’t the purchaser?

Mr Robinson cannot seriously think that a vendor who is paying an agent to get the best possible price is going to assist the purchaser in any way shape or form.

After speaking with many agents last week, we know that stock levels are not looking to increase significantly over the next six weeks. This does not bode well for would-be purchasers wanting to be in their new homes in January.

There are still many purchasers out in the market place and if the stock levels remain relatively low, prices are going to rise. Whilst a clearance rate in the high sixties gives the impression of a relatively balanced market between buyer and seller, it is the numbers of auctions coming up in the next six weeks that will determine whether prices continue to rise.

If you are in the market to purchase a home I would strongly suggest that you call us to have a chat. There will be more private sales and pass in’s at auctions coming up. You will be negotiating one on one with some very experienced agents. A good negotiator will make tens of thousands of dollars difference.

Ian James