Market Comment - Monday 28th March 2011

Did anyone expect anything different from this year? Clearance rates in the 60’s but sales still consistently over 1000 per week according to the REIV. These numbers are down about 15% from the unsustainable levels of 2010 but only about 8% down on 2009. The difficult question to answer is what will this do to price?

On many occasions turnover numbers give a good indication of how strong the market will grow. With sales numbers down on the last two years, I can still foresee growth, but down from around 10% to be closer to 8% for the top third performing suburbs in Melbourne. As less people purchase property and the population continues to grow, tremendous pressure will be put on tenants paying rent. Whilst rental returns growth has slowed over the past couple of years, (mainly due to the rapid rise in purchase prices, not a slowing of increased rents if interest rates rise), and growth slows marginally, landlords will still be looking for return on investment. Pressure on fewer property purchasers means higher pressure on rental growth.

There are several reasons why the purchasers have become a little skittish this year. We have had a year like no other that I can remember. Natural disasters have hit both Australia and our region; there has been pressure on the global economic climate caused by the lingering effects of the GFC throughout the European community regarding sovereign debt issues. The Middle East has had its fair share of turmoil already this year, with potentially more to come. And then there is our nation’s leaders: I don’t think anyone is doubting that the “Greens” are holding a considerable amount of power in Canberra these days, not to mention the “three amigos”; the three independents. All of these factors lead to uncertainty. Uncertainty will always affect our property market.

As far as the natural disasters are concerned, the amount of rebuilding needed both here and abroad, will actually stimulate our economy in the short to medium term. This will lead to labour shortages and wages growth. Western Australia is already starting a huge advertising campaign to bring in skilled migrants. If there is enough pressure in this area, the Reserve Bank may put interest rates up again. And if we increase our labour market by allowing immigration to increase, which we will have to do, we will have more trouble housing everyone.

The “price bubble” argument cannot be sustained whilst we have inordinate and necessary population growth. Even the biggest sceptics around would have to agree, that with our current and expected population growth, and our current levels of housing starts, there will continue to be a shortage of useable property for many years to come.

If you are considering a property purchase please feel free to call us for a chat.

Ian James

JPP Buyer Advocates

Market Comment - Monday 21st March 2011

So far this year the auction clearance rates are tracking exactly as we predicted. With well over 1100 sales for the week reported to the REIV, split fairly evenly between auctions and private sales, there was a clearance rate 66% according the REIV. We attended plenty of auctions on the weekend and with a few exceptions nearly all sold for what we thought they would.

This clearance rate represents a very normal market. One here in Melbourne that would be slightly in favour of the vendor and this is usually about as balanced as it gets. However, there was a dramatic drop in available stock last week. The Herald Sun reported on Saturday that the properties on the market in Melbourne and its surrounds dropped from 8904 to 6902, however this is during a week with a public holiday so we expected some drop anyway.

What is starkly obvious about Melbourne’s inner suburban market at present is most bidders appear to be second home buyers, or downsizers. There are few, if any, first home buyers able to compete - and this is clearly evident when surveying the crowd at auctions. However, we should see a rise in the first home buyer market when the stamp duty cuts kick in during June. This is bound to cause a temporary boost in the market and purchasers looking at property which appeals to first home buyers would be wise to secure prior to this date.

42 Fairway Rd, Doncaster attracted the most attention today. With well over a hundred in the crowd this 4 bedroom house located on the edge of a golf course managed appealed to 6 hungry bidders. The quoted range was 680-750K, however unlike the other sales today, it was announced on the market within the range at 740K. With Frantic back and forth ‘tit for tat’ bidding, it finally sold for 770K.

52 Eastern Rd, South Melbourne is a renovated Georgian style double fronted property with some unique qualities ensuring it stood out from the crowd. The agent had been quoting 1.4Mil+ but expectations were obviously a good deal higher! The auction opened on a genuine bid of 1.410 Mil and in front of a crowd of approximately 150 people, two other bidders took their chances with the price moving in steady increments until it was announced on the market at 1.615 Mil (some 200K above the price quote). The property sold for 1.755 Mil. With a result 140K above reserve, the vendor was obviously very happy!

If you are considering purchasing property soon, please feel free to make an appointment and come in for a no obligation chat.

Ian James

Market Comment - Tuesday 15th March 2011

With the Melbourne Labour Day weekend, the market was extremely quiet. Only 218 gazetted auctions and again a clearance rate in the high 60’s. With the next two weekends we should see sales via auction and private treaty climb back well over 1000 per week.

Obviously most news across the weekend has been overshadowed by the natural disaster in Japan. Whilst we have many friends and clients in Japan that are safe, JPP wishes to convey our deepest sympathies for those affected by the devastating earthquake and subsequent tsunami.

Japan is the third largest economy in the world, and Queensland’s largest export destination. There will be a ripple effect throughout the world as Japan comes to terms with the enormity of the devastation and then the challenges of the subsequent clean up. Whilst exports may be down temporarily, the clean-up and rebuilding will need massive amounts of raw materials. This will most likely make up for any short term downturn in Australia’s economy. Like the GFC, Australia’s economy may slow marginally, but house prices are unlikely to be affected.

Property prices in Melbourne are still finely balanced and in my opinion will stay slightly favouring the vendor for most of the rest of the year. If anything property prices may go up marginally better than 8% -9% if there is not enough stock on the market.

If you are considering a property purchase soon, please do not hesitate to contact us for a no obligation chat.

Ian James

Market Comment - Monday 7th March 2011

As we can see from the weekends 66% clearance rate, the market is continuing its balanced state. This means we can assume to see a very small consistent growth that will be imperceptible on a weekly basis but at quarter’s end will be close to 3%. After 6 months the $500k properties you can purchase now will be pushed to up towards $525k - $535k. It will not be enough to get the bank to refinance, it will not be enough to sell and make a profit: stamp duty, solicitors’ fees and selling fees would easily eat up any profit on that short a term. However, anyone thinking property prices will be 3%-5% lower by September will be sadly mistaken.

The Herald Sun have said there were 8612 properties up for sale or auction in Greater Melbourne. This is down from the previous week of 8649. For the prices of properties to begin to retract, we will need to see clearance rates in the 50 – 60% bracket and we will need to see the total numbers of properties on the market increase significantly.

For those that follow the clock theorem, I believe we hit 6 o’clock at Christmas. We will see reasonable growth through the first half of this year and an accelerated growth in the latter half of this year for Melbourne’s top third of performing suburbs. Around the middle of the year we will see whether the governments first home buyers discounted stamp duty will reinvigorate the “New Estate” sector. I am uncertain as to whether this will be significant. Developers are still not being well funded as banks have better options in the average mum & dad borrowing 80% for a standard house. Finance is still in short supply worldwide and banks are continuing to mitigate risk.

There were some exceptional results on Saturday. 5 Gaynor Court sold under the hammer $2.743M. This was after a third bidder entered the fray after arriving just before the auctioneer wrapped up proceedings at $2.685M. The third bidder asked the auctioneer what the last bid has been and the auctioneer made a good natured comment that $2.7 would be a good bid and seemed rather surprised when he received a positive response. The bidding went back and forth but was finally won by the original bidder.

The lower end of the market, $400k - $700k is not getting ridiculous prices, however it is getting good results. 3/11 Selwyn Street Elwood sold over the weekend at $450k. This was as predicted as was 12/7 Dickens Street Elwood. We estimated this to be a low to mid $500’s property and it sold for $541k. No surprises here!

If you are considering purchasing a property this year why not come and have a chat. There is no obligation and the first meeting is free.

Ian James