Market Comment – Monday August 31th 2009

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The number of properties on the market is rapidly increasing. But so is the number of buyers. Of the 7 auctions we were bidding at on Saturday only one passed in after genuine bidding. All these have sold at or above market expectation.

1 St George Grove Parkville was an extremely unusual property which was custom built in the 1930’s to have a tenantable unit downstairs and a residence for the owner upstairs. Its location was unique and the opportunities were varied as to what to do with the property. It could have been tenanted out to multiple tenants, turned into an executive residence or bought by an owner occupier. With few comparables in the area, the agent struggled to really put an accurate price on the property. Under competition the property sold for $1.320M which was a little over our estimate.

We have the highest recorded stock levels for this period since 2003, according to The Age newspaper yesterday. The REIV have reported there are 600 auctions scheduled for next weekend and then 775 the week after. Although we had an increase this week of 36% in the number of reported auctions to the REIV, the clearance rate still climbed 3 % to 85%. What happens over the next couple of weeks will certainly set the stage for the spring selling season due to start in 5 weeks.

The increase in stock will hopefully continue through October because the increase in potential purchasers is huge. If we analyse the current price increases vs comparable sales over the last three months, the numbers of people bidding at auction, the clearance rates, and most importantly the total number of private sales, we can see that without the continual stock increases through spring, prices will rise very sharply. There are more potential buyers than sellers and simplistic economics tells us this will relate to a price increase.

This may well be different in new estates where developers and builders are reaping huge rewards servicing the first home buyers. Once the grants taper off, we should see a relaxing of price in these new estates. If the interest rates do rise significantly early next year, this may also scare the first home buyers off a little.

With a slow down of first home buyers, we should also see the continuing resurrection of the property investor. A property in Reservoir over the weekend had eight people bidding for a very average house on excellent developable land. Most of these people were apparently investors. Rental returns are still very good, historic capital growths now look better than stock market returns over a long period of time and interest rates are still at historic lows.

All in all we are in for a sensational spring season. At this stage the only segment of the market place that may ease off is the brand new estates in about March next year. All the well serviced, established areas of Melbourne look set to continue with their price strengthening in the foreseeable future. Interest rates will have to jump three or four times (25 basis points each) before I think it will significantly affect the established market Just remember 2007 when the rates were 3% higher than now and the market prices were still increasing. And even during a Global Economic melt down our property prices in Melbourne simply levelled out.

If you are thinking about buying property this year please feel free to give us a call to make a no obligation appointment at our office.

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.