Auction season is upon us

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The Melbourne auction market has risen from its January slumber with a bang. We have been noticing very large crowds at all opens since mid-January, but the first auction results are filtering through with clearance rates in the mid 70% range from all the data collection companies. And these numbers are very high for this time of year.

Whilst the first big test of the market will be 27th February, we can already see huge crowds at the opens. I attended one open in Kingsville on Saturday where 10 groups were waiting outside before the agent had even arrived. When I asked the agent what he thought of the property and where it would end up, he was quite forthright in saying “I didn’t assume I would see this many people! I will have to get back to you!”

There were between 400 & 500 auctions on Saturday depending on which data agency you follow. REIV had a clearance rate of 77%, as did RP Data and Domain had 75%. These are very similar results to the middle of February last year. And this year, March will be a little more difficult for agents due to a shortened 2 Saturday month due to Labour Day and an early Easter.

If the crowd keep growing at auctions, then the clearance rates will remain high. If clearance rates and turnover numbers remain high, then property prices will rise. Whilst I thought last year the growth was going to be stupendous, and it was at an overall median price growth of 11%, my prediction was still for growth but slower than last year. Somewhere in the 6% – 8% range is where I was thinking. But the numbers at these opening weekends will soon put that thought to rest.

If the clearance rates remain in the 70’s then we will see close to 10% growth again this year. If they slip into the high 60’s then we can assume a steadier more manageable 6-8%. The clearance rates need to slip all the way through the 60’s and touch into the 50’s in order for property values to begin levelling out. In 2011 and 2012 we saw an average median growth of -1.0% according to Valuer General data and the average clearance rate was 57% and 59% respectively. Move forward to 2013 and we hit 71% clearance rates and the growth for houses was 7.2% (there was only 3.5% growth for units but this skewed due to oversupply). Last year according to the REIV results the average clearance rate was 76% and whilst the Valuer General figures are not yet available for capital growth, RP Data has announced that Melbourne Metro had a growth of 11%.

No single indicator will foretell exactly what will happen in the market. Even if all the indicators foreshadow the same movement there is still no way to predict exactly what will happen (Anyone that can pleas assist the world economists to work out what is happening in the world economy please!!) however, indicators do exactly what their names suggest. INDICATE!

If the clearance rates continue in the 70’s and turnover remains steady or climbs, then we will see price growth again this year. But that does not mean every property will grow in value, nor does it mean every suburb will have the same growth rate. Each suburb in Melbourne has its own growth characteristics and within each suburb each area and even each home has its own inherent factors that will give an idea to an expert whether it will have better than average capital growth or not.

If you are considering a property purchase this year, please feel free to contact me for a chat.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.