The Melbourne property market has only a couple of weeks left to run for the year and with a clearance rate of 55% according to the REIV for the weekend, some vendors and agents alike will be glad to see the end of 2011. But what changes are in store for 2012.
I wrote last week about where property prices will go over the next decade and that for all intents and purposes it is a “no brainer”. We did have the usual comments from people saying that I have no idea what I am talking about. However, not one response offered any other alternative, or even any factual response. In fact the Valuer General data for the June Quarter was released last week showing that house prices increased in the Melbourne Metropolitan area by 2.2% from the previous quarter.
The median house price has risen from $489,000 in March to $500,000 in June. Volumes are however at the lowest quarterly level since June 2009. It has remained unchanged from the median of the same quarter last year. These statistics are not educated guesses or samples of less than 10% of the market. These numbers are a statistical analysis of all the sales collected by the Valuer General of Victoria.
Unit prices have also risen this quarter: up 2.4% on the previous quarter. But the number of sales last quarter was 5353 and the same period last year had 7969 sales.
The biggest movement was vacant land sales. Down in numbers by a whopping 65%, the numbers in the same quarter last year were 5249 and this year are 1848. However, the median price has moved from $185,000 to 213,000. This is a 15% movement.
Tomorrow the Reserve Bank will try to read the tea leaves and have to decide whether to decrease the interest rate again or remain on hold and see whether Europe actually implodes. Further to this, the banks have had a credit rating cut and suddenly their multi-Billion dollar profit margins might be pulled back a touch. Even if the RBA decides to cut 25 bps, there is no guarantee it will be passed on and therefore may be of little use to consumers anyway.
Now throw in the housing figures above. Mining is still surging ahead with investment, retail sales figures were up 0.6% and even some investment into our manufacturing industry was welcomed last month.
I do not think the RBA will cut interest rates tomorrow. I think they will “keep their powder dry” and if the need warrants, will drop 50 or 75 bps in one hit to make sure a substantial lowering of interest rates hits the consumer.
Early next year investors will re-enter the property market. Renters are already having a difficult time finding accommodation, and rents will increase steadily next year. There are still many potential tenants offering over and above asking price for rental accommodation. When we do see a cut in interest from the Reserve Bank, and loans are available around 6.5%, there will be a veritable flood of investors pushing prices in the range of $400k – $700k upwards. For an investor with good equity, who can borrow 106% for an investment property, the shortfall can be as low as $4500 for the year to purchase an excellent long term growth property in Metropolitan Melbourne.
I am not talking about off the plan sales in some mining town in the middle of nowhere where capital growth is usually non-existent, or an apartment block of several hundred, some of which are never even built. I am talking about established A – grade properties within 10 km’s of the CBD. And if the interest rate were to fall to 6% then it is nearly revenue neutral.
2012 will see the slow but steady rise in values, of both houses and units in Melbourne. This assumes our interest rates do not go up, our unemployment rate stays around the same as it is now and Europe remains a mess. If rates drop, unemployment goes down and Europe works out its problems, then our property prices will very quickly revert to a growth near 8% p.a.
The next couple of years will be very interesting for property buyers. If you are interested in buying a property and what some assistance please do not hesitate to call for an appointment
Ian James
Director JPP Buyer Advocates
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The Penny Drops!
May 14, 2012 Posted by Ian James
It usually takes a while longer for the media and others to see what is happening in the market place. But realistically it only took a month this time around. Owner occupiers, upgraders, second home buyers, call them what you will, are flooding back to the market place. And there is not enough stock.
The talk from some data collection agencies about an abundance of stock is not incorrect just disingenuous. There are plenty of properties on the market. These are made up mainly of lower value stocks. Not lower priced, just the lower value of many suburbs. So when you look at raw numbers, most properties that are selling are selling below median prices for the suburb; this is because the market stock is currently skewed. And those that are getting “surprising” results are actually not. The fact that several people are bidding on a few properties and those properties that are not well located or poorly presented, or that are just not that valuable, fail to motivate the larger pool of “upgraders” is not at all surprising. In fact I would be surprised if these properties were to sell at a very good price.
To think this month’s RBA rate movement or the budget announcements have anything to do with the current market demographics is also a furphy. It was widely forecast by financial gurus that there would be a rate cut and this has been followed up by one that it may have even been leaked. It was also obvious to all and sundry that the banks were not going to pass on the full rate cut. This would have had little effect on the last four weeks sales results in Melbourne.
I don’t think Wayne Swan’s budget surplus is the key fundamental for owner occupiers coming out to the market place either. If anything, middle to upper class buyers would have retreated into their paid off houses, rather than coming out and looking to upgrade. But I do not think anyone is thinking Wayne Swan is here in any long term capacity.
Any would be upgraders, owner occupiers or downsizers need to understand that buying a new home will not be a short overnight enterprise. It will take many weekends of understanding what is currently out in the market place. You will need to also look at all the stock on the market and track all the sales in the area you wish to purchase in. This is paramount in the current market. If you make an error of judgement now, the very professional selling agents will sell you a property for well above its value.
There are many would be purchasers that are getting exasperated in the current market. And there are many agents trying to capitalise on exactly this. I have seen many properties in the last six weeks sell very well. Multiple bidders have been pushing above reserves by 10 – 20%. If the house is good, well marketed and well-presented and has all the fundamentals of a good long term investment property, the vendors are selling extremely well. Prices are often well above reserve. There are also some of the “not so well located” properties doing better than they have a right to do. Some unsuspecting buyers, who aren’t doing their homework, see these high prices and immediately equate this to prices across the board rising and agree to pay some very silly prices for property that is “not so good”
Do your homework. If you do not you may find that your property has shown little or no capital growth. And for those very unlucky few that are forced to re-sell their properties in a short term will potentially find themselves in a negative equity situation, especially if they leveraged quite high in the first place.
Over the next 12 months we will see the market begin to strengthen. This will be followed by more owner occupiers putting better homes on the market, and this will snowball into an upturned market where fundamentals of good stock, lower interest rates and a growing economy will bring stability to the faltering property market. This in turn will increase rental returns and bring investors to the forefront as well.
If you are considering purchasing property in the next 12 months, please feel free to call for a free no obligation chat.
Ian James
Director
JPP Buyer Advocates
Tags: market forces, media comment, median prices, owner occupiers, RBA rates, statistical data
Categories: Market Forces