Market Comment – Monday 19th July 2010

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After a clearance rate of 72% on 525 auctions, which is 48% more than this time last year, and a steady increase in median house prices released last week from the REIV, both major newspapers yesterday had to include the word “Bubble” in their headlines.

Properties over the weekend saw good competition at all auctions JPP advocates attended. A two bedroom unit in Avoca Street in South Yarra was sold for $802,000 after being declared on the market at $660,000. The last, very similar, property in the block sold for $695,000 in May this year. There are still plenty of people out there looking for property.

The “Barefoot Investor” said you shouldn’t listen to anyone when hearing competing arguments about “unsustainable growth”. His advice is only buy if you can safely afford to do so. And his definition????? If you halve your income and interest rates rise by more than 50% (assuming none of the sensational economic progress that comes with that sort of rise) and you can still afford to buy then this is good. If you are planning to drop one income due to starting a family, then it is self-evident not to include that money in any future budget. If people wait until they can pay cash for a property then they will miss out on incredible growth that will occur in the next 10 years

With our population growing and our new home starts stagnating, similar to what has occurred over the last 10 years, it will take a decade to recover some parity between house supply and demand. Over the next five or six weeks, with our prospective leaders out on The Hustings, keep an ear out for anything about sustainable population. Labor’s new position on population growth is that Ms Gillard does not believe in a Big Australia, whilst I haven’t heard Mr Abbot’s view.

This will be a crucial part of the balance between supply and demand. If the government turns off the immigration tap which we so desperately need to fulfil our massive labour shortage, then this may slow down property price growth. But I doubt either party will do this as it is crucial for Australia’s continuing economic growth.

Assuming that population growth continues, we should see the top 20% of Melbourne suburbs average a growth rate of 10%- 11% p.a. over the next five to ten years. But it is the new estates which will be far more difficult to predict. New Estate prices are dependent on Builders and Developers’ margins on new homes. When interest rates are low and money is easy to get, builders put their margins up and the entire established property market rises with them. However, when times get a little tougher, the developers drop their margins in order to get more work, the established property prices in the area also need to drop any price so the sale price matches the market created by the developers. Whilst 2009 saw a massive price increase in Estate areas due to First home buyers giving builders their first home owner grants, we should see the medians in these areas drop back this year.

If you are thinking about purchasing a property please feel free to contact us for a no obligation meeting.

Ian James

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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.