The Penny Drops!

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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

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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 “The Penny Drops!”

  1. Melanie

    You’ve highlighted a fundamental important aspect for buyers- to do your research. For first home buyers, buying an investment property might put you at an advantage if the market strengthens, as long as you get it at a good price. You will be able to benefit from the equity thus giving you the ability to buy somewhere more ideal in the future.
    There are opportunities, such as these, available in the current market; some have been discussed in this article: http://bit.ly/I5GaJx
    They highlight the benefits of doing your homework so you are in the best position.

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