There’s a palpable change in the market place which would probably only be noticeable to those who monitor ‘on the ground’ events closely each week. The much publicised ‘hint’ of a rate drop from Westpac’s Bill Evans, along with a noticeable fall in stock and fewer homes being auctioned, has had the effect of ‘shooting’ a bit of confidence into the buyers arena.

We’ve been aware for some time that there are plenty of buyers in the market place – and it’s obvious crowds attending auctions are not just made of up of ‘sticky beak neighbours’ – but to this point, there’s been no sense of urgency enticing buyers to step into a market place they perceive to be on a downward slope, or subject to painful interest rate rises.

It’s sad but true, that caution prevents most buyers acting against the herd mentality and purchasing whilst there is apparent ‘doom and gloom’ flattening expectation and providing better buying conditions. This is understandable – after all, to the average Australian, the family home is not just a place for shelter, it’s the biggest investment most make in a lifetime, and is, for all intense purposes, their future security.

However, the market is slowly starting to wake up, and this is not unexpected. We’ve had virtually zero growth since December, and although it’s clear we’re suffering tighter economic conditions than previously expected as we lead into the second half of the year – with no one forecasting double digit growth – there is no escaping the pressure our market faces in Melbourne’s inner and middle ring suburbs. Quite simply – supply in these areas is not feeding demand.

The RBA have provided reasonable assurance that interest rates will not be rising any time soon, and as we move towards spring it’s fair to say we’re seeing buyers who have previously been waiting in the wings, coming out in increased numbers as stock drops, and there is increased concentration around the reduced numbers of quality listings available. After all – Aussie’s have not lost a desire to purchase their own home, and investors recognise the rental market is strengthening.

The slight increase in this week’s clearance rate to 59% maybe representative of this – although it is too soon to make a confident call. However, more results are being recorded which show a push upwards from what we would have expected only a few weeks ago.

Any change in temperament is important to note, because as competition increases, it’s likely we’ll see more properties sell over and above what they’re worth – or what they could have been secured at with better negotiation skills.

A confident knowledge of what a property’s market value is, and the ability to negotiate and walk away when the price is climbing too high, are requirements not to be taken lightly.

37 Lomond Drive, Glen Waverley. A family classic, offering 5 bedrooms, a modern interior, and around 700 sqm of land.

Although not in the ‘Glen Waverley’ School Zone, and not exactly ‘walking distance’ to transport, the size of this property and its quiet residential location was obviously enough to pull a hearty crowd of 150 people and 5 willing bidders.

The auctioneer didn’t need to offer a vendor bid – the auction opened at 650 and it was open slather from that point onwards. It wasn’t easy to keep on top of the bidding – the pace was fast, and as the price approached 750K, one of the agents ran inside to get permission to place it ‘on market’ without the auctioneer needing to break pace.

At 760K it was announced on market, and sold a little later for 790K.

18 Fernhurst Drive, Glen Waverley. Anyone thinking the crowd at Lomond Drive had been large, was in for a shock at Fernhurst Drive, There would have been no less than 200 people in attendance, and more arriving as the auction was taking place.

This large brand new townhouse, on roughly 360 sqm of land, was well designed for the luxury home buyer, and its location – nicely positioned inside the Glen Waverley School zone – was an added attraction.

There was plenty of interest; however the auctioneer didn’t open with a vendor bid, and the genuine bid used to kick off the event was a good way below reserve.

Opening at 680K, the auctioneer asked for increments of 40K. At least 4 bidders took the challenge, however at 860K the pace suddenly stalled.

With nowhere left to go the property was passed in and negotiations started, and without the crowd clearing very fast, it seemed there was still some potential interest to tap into.

Catherine Cashmore

Last Friday Westpac Chief Economist Bill Evans, made a lonesome brave call of a potential cut in rates. He isn’t the first to suggest an interest rate drop, however he is the first of the ‘big four’ to do so, and therefore the announcement carries influence.

However his prediction shouldn’t come as a total surprise. In July, Rate City found 18 out of the 100 lenders they track have already dropped their 3 year ‘fixed’ rate mortgages, and as banks aren’t in the business of gambling, when fixed rates drop, it’s a strong indicator the RBA ‘may’ follow suit.

However Bill’s assessment of an initial 25 basis point drop in December – leading to a full 1% drop in similar increments – may fall a little off the mark. Firstly, the RBA are unlikely to leave an initial cut until December, especially considering they won’t be meeting again till February 2012. If they’re concerned by the retail sector, they will need to cut the rate earlier than this to have any effect on Christmas sales.

Secondly, a 25 basis point drop in rates is unlikely to have much overall effect except perhaps to signal a ‘change in attitude’ by the RBA and stimulate spending. After all, they have no real reason to cut rates outside of cautionary sentiment. We have low unemployment, high wage growth, an upcoming commodity boom on the horizon, and therefore it seems the only barrier has been a lack of consumer confidence (hence why Westpac made the call in the first place). After all, the recent change in mentality to saving rather than spending is surely in the RBA’s best interests?

However if the call is simply to forestall a ‘potential’ kickback from international debt pressures and job losses from small business not benefiting from the mining sector – as Westpac has predicted – we could be looking at an initial larger cut (especially taking into account the banks are in the habit of not passing on the full impact of RBA cuts onto the public.)

No one can foresee the next few months, however it seems safe to assume the market is not going to drop (or ‘correct’) further, and the mere suggestion of an interest rate cut causes instant speculative activity and this will no doubt have an effect on the housing market. (Especially considering there are large numbers of investors with pre-approvals just waiting for the starting gun.)

We should also not forget that we’re now on the downhill walk into the spring ‘buying season’ which naturally results in increased activity from those who have been in winter hibernation.

All said and done however, this weekend shaped up with little difference to previous weeks – a 56% clearance rate, and most deals taking place behind closed doors.

27 Tulip Grove, Cheltenham. You can’t fault the location of this property, or the house itself. However you can find an explanation for the passed in result considering it’s a big 3 bedroom, 2 bathroom property asking a family house price, but situated on a town housed sized 400 sqm block of land with limited outdoor space. Families looking in this price range are more likely to opt for a full block of land which gives options to extend or renovate. The property had been quoted at 730-800K, however it was blatantly clear no one was there to bid. 90% of the crowd had their arms crossed, and the other 10% had hands firmly in pockets! The auctioneer opened on a vendor bid of 730K – however it was obvious no one watching was interested in placing a bid. It passed in with a reserve of 795K

2/492 Kooyong Rd, Caulfield South didn’t fare much better. It was another family sized home sharing a block with no back yard, yet asking a house sized price. It’s also located on a rather busy road which would have deterred a few buyers. The property did present nicely however, and a decent crowd of interested participants turned out. The auction opened on a vendor bid of 790K and was followed by the only genuine bid of 800K offered (despite a lengthy half time break). Post auction negotiation didn’t result in a sale. The reserve was 895K – a good way from the passed in number – and the home is now being offered private sale.

Sold under the hammer

33 Sunnyside Grove, in Bentleigh arguably offered everything a family could desire. A beautiful 4 bedroom plus study Californian bungalow – quoted at 1.030 – 1.130 Mil. About 120 people turned out for the auction and the body language (no hands in pockets or arms crossed) immediately suggested a more positive outcome. Nick Renna – the auctioneer – wasted no time opening the auction on a vendor bud of 1.030Mil. 3 bidders fought it out quickly taking it to its on market price of 1.160Mil. The auction didn’t slow there however, and the final selling price of 1.235Mil would have no doubt seen a smiling vendor.

3/13 Bluff Rd, Elwood stood out for its great location and period featured interior. Located opposite the beach, it attracted a big crowd of onlookers. The one downside which no doubt held the result back, was lack of parking, which would is important to a large proportion of the investor market. Quoted verbally with interest in the mid 500K. The auctioneer made it immediately obvious we had a good way to climb following a starting bid of 500K which he termed being ‘at yesterday’s prices’. The auction had a slow start – however as soon as the agent had got the half time break out the way the event took off. 3 bidders pushed the price to 600K which was where its ‘on market price’ was announced. However 600K was the limit everyone had gone with, and with no competition to push it any higher, it sold for the even figure.

Catherine Cashmore

Commentators love terming our market a ‘buyers’ market’ yet ask the average ‘home buyer’ if they’re finding it any easier to purchase property, and I doubt the answer would be an out and out yes!

It doesn’t matter how much stock is on the market, if that stock doesn’t suit home buyer’s needs, it can hardly be deemed a ‘buyer’s market’ And in the current climate – offering plenty of stock for ‘set and forget’ investors – (rather than family home buyers) – it would be better termed an ‘investor’s market’!

Investors are not the same as owner occupiers. They do not have to warm to the “feel” of a home. They can be walking distance from any café, not their favoured one. They can purchase close to any good school, not the one their children attend. For an investor, it’s more important to have a generically good floor plan, than one than intrinsically meets their needs. They don’t need to buy until a good opportunity presents itself, and for this reason, they can step in and out of the market at will, picking the best opportunities currently available, whilst targeting the ‘need to sell vendors’. There are abundant opportunities for investors. It’s an ‘investor’s market’.

However home buyers rarely have such a luxury. When home buyers purchase property it often follows months of searching through limited suburbs of choice for a property with the particular idiosyncrasies to suit individual tastes. More often than not, when a home buyer finds their ‘dream home’ there are half a dozen other people who have targeted it as well – (and a discretionary vendor who will test the best negotiation skills.)

These types of home buyers represent the dominate buying demographic currently in our marketplace. They make up roughly 60% of the ‘shoppers’. They are either young couples looking for a family home, or current owner occupiers looking to upgrade. They tend to fall most commonly in the 500K-800K ‘couples’ price range, or above $1Mil upgraders and want sizeable homes, in middle ring suburbs, close to public transport and family lifestyle amenities.

Houses ticking these boxes are not in abundance, and as we head into winter the available stock supply is failing to meet demand. As a consequence, turnover is dropping, and some of the only the stand outs attracting the required concentration of bidders needed to exceed vendor expectation, are those that can appeal to this audience of purchasers.

Furthermore – in any market, as soon as emotional triggers take a hold, it’s impossible to take a considered point of view and judge a house objectively. Therefore average home buyers really do need to take cautionary steps before getting out the cheque book, and today’s results once again proved the point. Steady clearance rates, low turnover, but the odd ‘stand out’ result to contradict ‘buyer’s market’ headlines.

Passed in and Negotiated

6/63 Roselyn St, Brighton – Brighton is a suburb which appeals to owner occupiers, rather than renters, so when an affordable opportunity presents itself offering an attractive easy maintenance lifestyle, sitting in a street of 1Mil plus homes, you’d expect to get some interest. Quoting 540K-590K, the auctioneer kept the small crowd waiting, as he wandered out 10 mins late. Confident there was interest in the crowd, and not tempted to start with a vendor bid, he asked for an starting bid from any of buyers he ‘knew’ were interested. The request didn’t go unheard – the auction kicked off with a genuine bid of 550K. However, what initially looked like it would be a competitive auction, died a sudden death as 2 bids later the action stopped at 570K. Unable to inspire the interested parties to dig any deeper, the highest bidder was taken inside to negotiate, and the home was eventually purchased for 610K.

Passed in on a genuine bid

8 Boondara Grove St Kilda East was another surprising pass in, however it was also an example of vendor expectation being a little too high to meet the current market. This beautifully renovated semi-detached Art Deco style townhouse located in the heart of St Kilda had been verbally quoted around the high 800K – low 900K range. However when the auctioneer asked for an opening bid, the price quote didn’t stop one hopefully punter trying his luck with a bid of 200K! The auctioneer made some quip about it being a little late for the Melbourne comedy festival and it wasn’t long before someone else offered 850K. 3 bidders competed, however none was willing to exceed the quoted range – (which was not where vendor expectation was sitting) The property passed in at 925K with a reserve of 1.025Mil.

The top end of the market has been struggling to gain much pace, and suburbs such as Albert Park – (which contain some of the highest priced land – dollar per square meter in Melbourne) – have had little interest to push capital growth since mid-last year. 37 Kerfred Rd, Albert Park, Quoting $1,250,000 – $1,350,000 is a well located, and nicely renovated single fronted period home. It also attracted a large crowd of ‘would be buyers’ It’s clear from the crowds turning up to the auctions that there are buyers waiting in the wings to make their move, but confidence is the missing ingredient. Asking for an opening bid didn’t result in any takers, and the agent was forced to open on a vendor bid of $1,250Mil. When there was no response, and with a reserve that was no doubt some way away, the agent was forced to make a second vendor bid of $1,270Mil before passing the property in.

79 Merton St, Albert Park told a similar tale, quoting $2,750,000 – $2,950,000 – this property was right at the price point that’s currently suffering low demand. However it was a beautifully renovated 4 bedroom home, abundant in period detail – albeit without parking which – although common in this suburb – would have deterred some. The agent was forced to open on a vendor bid of $2,750Mil – There was no interest from the small crowd of onlookers, although it was clear not all were neighbours, and some would have been there monitoring the market, however with a silent crowd, he was forced to pass the home in with a reserve recorded at $2.850Mil.

Sold under the hammer

Finally – the successful result of the day went to the house that was well set up to grab interest from the dominant home buying demographic currently shopping for real estate. The ‘family home buying market’. 7 Jenner St, Blackburn South, offered a ‘foot through the door’ chance for homebuyers to take advantage of a 3 bedroom original house, on a full block of land, close to transport, schools and shops, offering lots of potential to extend and add value into the future. Five bidders waiting to raise a hand however didn’t deter the auctioneer opening the action with a vendor bid of 490K without even asking for a genuine start. Entertainment value was further boosted when – approaching its 590K reserve, the auctioneer was prepared to take $50 bids to keep the action buoyant. It did the trick however, because the property sold – top of the range – for 619K.

Catherine Cashmore