Has anyone rung the bell?

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I have! There is now no doubt in my mind that property prices in Melbourne have reached their lowest point. And the drive by owner occupiers will lead to higher prices for the better properties over the next 12 – 18 months. We have already shown why median house price movements are basically a useless statistic at the moment (turnover volumes are so low the statistic can be skewed too easily.)

The clearance rate does not give a reliable picture of market sentiment either. Owner occupiers will pay over the odds to secure the property they want and will not go after a property they don’t like. This is different to investors. Investors will take the second best or third best house – but at a reduced price! What we are currently seeing in the market is five, six and sometimes seven people bidding on the best presented house at the time and no interest just down the road on the second best house in the neighbourhood.

This does two things in the market place. The first, it pushes the better prices up substantially. The second; there are a lot more pass-ins and negotiations after auctions. It can also mean a lot of properties are negotiated prior to auction. A selling agent, and indeed a vendor do not want their property to be one of those poorly attended at auction. There is no worse feeling than a dead cold pass in where there are no bidders. Avoiding this at all costs is at the forefront of a selling agents mind.

So why have I rung the bell. Owner occupiers now make up 75% of our clients. This time last year over 70% were investors. I have asked many agents who are their main purchasers and all are saying this year it is the owner occupier. Add to that the lack of people willing to by any old property, even at a fair price. It is showing us a distinct lack of investors and this proves who is dominant in the market place.

Secondly, the amount of agents doing deals within the auction campaign. With the new three day cooling off laws, I assumed there would be a dearth of deals done prior to auction. I could not have been more wrong. If agents get a price they, and their clients, see as fair and reasonable, then they want to do deals. Last week alone, we closed 5 deals prior to Saturday, 4 of which were auction campaigns.

The Victorian economy, like most other non-mining states is, at the moment, not performing at its peak. This will also change dramatically through the next two to three years as the funds from the mining states begin to flow through the mining company’s offices, quite a few notable ones located in Melbourne.

In my opinion, the statistical data will show a very flat market and it will begin to move upward around this time next year. But the prices will actually start to move up later this year or early next year. At first you will see some big prices sporadically, then regularly, whilst still seeing a lot of pass-ins. As the prices of the best properties rise, prospective purchasers will begin to re-calibrate their own needs and wants and begin to look at slightly “lesser” properties than their wish lists. This will in turn generate high clearance rates and eventually higher prices.

This will in turn bring more vendors to the market and before long the market will pick up pace to be similar to 2006 & 2007. If you are a keen observer of the market you will see this building very easily, however the statistics will take 3 to 6 months to catch up. Even the media will catch up to the market movement by mid-way through next year.

If you are considering purchasing a property to live in or as an investment, please feel free to call for a chat or organise a no-obligation first meeting.

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.

1 comment on “Has anyone rung the bell?”

  1. aushousingcrash

    Melbourne has the lowest rent yields in the country, some of the worst employment prospects with the unwinding of home building stimulus and state govt cuts. Rental rate increases are not occurring (unlike through 2007-09), so even the FHB will be in no hurry to buy. Your typical buy and hold investor are going to stay well clear, until prices bottom. RP Data Hedonic index for Melbourne is showing the worst ever monthly result this May, you’ve called this one too early.

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