Market Comment – Monday August 11th 2008

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July has been the busiest month this year for JPP. Our enquiry levels are as high as they have been in twelve months. And its not just investors flooding into the market, the owner occupiers are back. We have purchased 15 properties on 10 days. These properties ranged from family homes in Melbourne’s best suburbs to investors units in Inner Melbourne to some of the best properties in Geelong. Vendors are beginning to meet the market; owner occupiers and investors are flooding back to the market. I believe the spring season will be a very hectic time. The Reserve Bank and the bigger commercial banks will obviously play a pivotal role; but, Supply and Demand will run the market as it always does.

As the cold weather freezes the Dandenong Ranges, buyers are starting to brave the wintry conditions. Most reporters are telling us the clearance rate is down, the market prices are falling and the ocean levels are going to rise by 3 metres. The reality is agents are marketing properties well above what the market sees as fair value and accordingly the properties do not sell. As soon as the agent comes back to meet the market, the property will usually attract attention.

Those vendors, who understand that a well marketed property will usually perform better than one that has a poor marketing strategy, are selling their properties easily and usually well above asking price.

It is not the fault of the agents in asking for more than the property is worth; it is usually the vendors dreaming that their property has continued with another 20% rise since the start of the year. We all know this is just not the reality.

There has been a very handsome 14% increase on median house price between June 07 and June 08 and if we had this kind of growth year in year out like some of the better parts of Melbourne have done over the past 10 to 12 years, then I would be extremely happy.

We are continually seeing properties sold weeks after a failed auction, when the vendor finally begins to understand what their property is worth. However, those that are marketed accurately are attracting multiple bidders and stern competition which usually pushes the price up above expectation.

The RBA will drop interest rates; the major banks will certainly not raise them. At the Parliamentary inquiry into banking competition last week, ANZ’s Mr Rowland likened a Reserve cut to a drop in price of one ingredient in a loaf of bread. What an absolute “crock”. When funds were cheap overseas and the Australian economy began to heat up, the RBA began to raise interest rates. The banks immediately passed on every full rate rise. If it were such a miniscule ingredient, why were the full rate hikes passed on Mr Rowland?

Property prices have a natural floor, unlike stocks in a company. If the company is incredibly poorly run, it can go out of business and shares in this company are worthless. Property does not operate like this. The market demand is increasing on a daily basis. 1500 people a week are coming to Melbourne to live here. There are not enough rental properties now. When interest rates come down, the disparity between rent and loan repayments will become so close that renters will re-enter the property market.

Supply and Demand are the quintessential elements controlling property prices. Prices will eventually have nowhere else to go but UP!!!!!!!!

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.

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