“Groundhog day” in the housing market

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We’re in arguably the busiest month of the year for real estate, however do a tour of Melbourne’s auctions and you wouldn’t perceive it. On one of the busiest (and wettest) weekends of the year so far, during which some quality options were on offer, buyers were showing up – but they weren’t getting their cheque books out. I went to 6 auctions this weekend and there were decent sized crowds at most – (despite the drenching rain.) It was also abundantly clear the agents and auctioneers were expecting better results and from the number of buyers approaching them after the auction, I don’t think their expectations were flawed. However every auction I attended passed in – 5 on a vendor bid.

Whether we’re seeing people lose confidence in the auction system, still having jitters over the economy, or simply hanging out to see if prices drop further is un-known. I’d assess there are a number factors at work. Vendors however, are not in a position where they need to throw their properties into the bargain bin. Every property will sell at a price, but very few vendors are willing to match that price, and until one side caves in, turnover for this time of year will remain sluggish.

It takes just one bid from the highest bidder prior to a property passing in to grant an ‘exclusive’ right to negotiate at the vendor’s reserve. Whilst negotiations are ongoing, the agent cannot deal with anyone else who may be willing, or able, to pay a higher price. The rule is reiterated at every auction I attend, however the message isn’t coming across. When I see properties pass in on a vendor bid, and 5 people immediately approach the auctioneer following the auction to embark on serious negotiation, only to see the property ‘sold’ later in the day for a price higher than the vendor bid given, I can only shake my head at their lack of experience knowing that the agent is in the box seat – not the buyer – and as an experienced negotiator, he’ll be able to manipulate the situation and in some cases, achieve a higher price than he would have done outside the house with heated competition. Buyers beware – if you’re not sure how the auction system works, seek help.

The clearance rate came in at 55% which is surprising considering the amount of pass in results I witnessed. However 114 auctions weren’t reported – that’s 15%. The un-reported number hasn’t been that high since the 6th March this year during which there were 856 total auctions reported (compared to this weekend’s 741) with 126 not reported by the end of weekend. Clearly there’s a lot of negotiation still taking place, which will typically delays the reporting of results until resolved – and means those sold via this method will eventually be counted in the overall clearance figure boosting it – (as some would say) – ‘disproportionally’.

Last year the RBA were accused of using the publicity surrounding the Melbourne Cup to slip through a rise in the interest rate – many said it was one too many. It was the fourth time in five years we’d seen a rise on cup day and it was heralded with much criticism resulting in a surge in the Aussie dollar. There hasn’t been any movement since and now there’s speculation they’ll use the same day this year to cut rates. The news will be welcome in the housing market, but it won’t cause any immediate change in prices. Interest payments can be offset against an investor’s income – so a small movement up or down has little effect in this sector. However for home buyers a drop in rates may stimulate activity and therefore I’d speculate we’ll eventually see a greater turnover of homes should the cut follow through. Without it, the year is set to finish on an exceptionally flat note.

Passed in on a genuine bid and sold

38a Chomley St, Prahran

38a Chomley St, Prahran was a foot in the door where houses typically sell over 1 Mil. A small 2 bedroom ‘one of a pair’ quoted at $650-700K should perhaps have attracted a bigger crowd. Only four groups turned up to the auction and therefore the auctioneer managed to get it tied up before the rain hit. A short preamble was greeted immediately with a genuine bid of 630K. A small break to see the vendor predictably didn’t see it announced on market, however the bidder was taken inside to negotiate and the property sold over the quoted range for an undisclosed price.

Passed in on a vendor bid but sold via negotiation

16 Closeburn Ave, Prahran

Around the corner at the other end of the price bracket, 16 Closeburn Ave, Prahran was ticking every box. 624 sqm in this location isn’t in abundance, and therefore it was no surprise to see a huge crowd squashed under the wide veranda of this four bedroom renovated period master piece as the rain kicked in with a vengeance. Quoted at $1.8-$1.9Mil, the auctioneer wasted no time with his pre-amble despite having an attractive female agent holding his umbrella. The auction opened on what the auctioneer called an ‘underwhelming’ genuine bid of $1.6 Mil, and therefore was immediately eclipsed with a vendor bid of $1.8 Mil. However nothing was inspiring the crowd to counter his bid and as expected the home passed in under a ‘free for all’ negotiation scenario. The property later sold for an undisclosed price within the quoted range.

Passed in on a vendor bid – not yet sold

94 Hambleton St, Middle Park

94 Hambleton St, Middle Park also attracted a good crowd of onlookers. Quoted at $1.5Mil plus, the rain had stopped so the auctioneer took his time to ‘pre amble’ the benefits of living in the location – Albert Park Lake, Schools, Shops, short stroll to the CBD etc. However it didn’t wash with the bidders – he was forced to open and pass in on a vendor bid of $1.5 Mil. This time there were no takers after the auction and the reserve has been set at $1,780 Mil.

It was a similar story at 36 Moubray St, Albert Park, however this time there was clearly a higher degree of interest. Quoted at 2 – 2.2Mil a huge crowd of onlookers attended the event. The auctioneer announced he had handed out ‘9 contracts’ to interested parties so it was very surprising not to see a single bid. Forced to open on a vendor bid of 2Mil he passed the property in and the house remains unsold with an undisclosed reserve over 2Mil.

14 Comer St, Brighton East

14 Comer St in Brighton East didn’t fare much better. During the pre-able the auctioneer informed onlookers he lived in the same street and therefore freely expounded on the benefits of the locality. He also took time to state how well the market is performing for Hodges Brighton with a high number of properties selling under the hammer. However, he clearly spoke too soon because it was a different story at 14 Comer St. Quoted at $2.2 Mil+ he was forced to open on a vendor bid of $2,2 Mil and without much additional effort, passed it in with no bites and a reserve of $2,4 Mil.

14 Vera St, Bentleigh East

Finally 14 Vera St, Bentleigh East finished a disappointing day for many vendors. A good block for re-development and yet offering ample accommodation with four bedrooms and two bathrooms it was surprising not to see a bid considering the quoted range was high 500K to low $600K (which is an attractive price range for home buyers in this location.) The auctioneer gave the crowd plenty of time to consider making a bid – he joked with one agent that it typically takes 45 seconds for someone to raise a hand. However it didn’t work this time – the auction opened and closed on a vendor bid of $590K.

Catherine Cashmore

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