We survey a number of real estate agents across Melbourne for their views of the current residential property market, and what they expect in the next 6 months. We find this a more accurate guide than relying on the published property statistics which deal in averages when there are in fact many different property markets across Melbourne.
We hope you find this of benefit to you or your clients who are considering selling property.
There is considered to be an under-supply of established residential properties and older style apartments across Melbourne. However, there is a surplus of new apartments, poor quality apartments and house & land packages in the outer areas.
The number of properties on the market have reduced by about 20% from 12 months ago. Many vendors are holding back from selling due to the price falls. However others have adjusted to the lower prices, and are prepared to meet the market.
Agents report 40 – 50% fewer people attending open for inspections than 12 months ago. However those that do attend, are more serious buyers. There used to be 3 to 4 bidders at most auctions, now agents say there may be only one person if that.
The biggest fall in buyer interest occurred in the third quarter of last year, but the numbers may have stopped falling, with some agents believing the lower prices are tempting buyers back into the market. Properties that couldn’t be sold last year were finding buyers in January.
The Biggest Impediment to Buying.
The biggest impediment buyers face is the difficulty in obtaining finance.
Banks have become very conscious of their ‘responsible lender’ duties and carefully examine the ability of each applicant to service the loan in various scenarios (e.g. a 7% interest rate). Credit card statements are vetted to establish spending habits, etc.
It seems that it doesn’t matter how much equity someone has in the property, its all about their ability to service the loan. Banks now either decline to lend or offer a reduced loan amount – sometimes significantly reduced amounts which puts them out of the Melbourne property market.
There is now a significant time delay in getting loan approvals - a borrower should allow 3 – 4 weeks. Many sales are now made conditional on finance with no certainty that the loan will be approved. Vendors should be aware of this and factor it into their time line.
Method of Sale.
Auctions are still the preferred method of sale in most parts of Melbourne, however the selling process is changing.
Buyers are encouraged to make an offer before auction. If there is only one buyer, vendors are encouraged to accept a reasonable offer, rather than risk losing the buyer at auction (once they realise they are the only bidder).
Some agents now use ‘Private Sale with a Deadline Date’ (or Expressions of Interest) rather than risking an auction. The advantage is the vendor can change the ‘deadline date’ if there is no buyer interest, as opposed to holding or cancelling an auction.
At auctions, bidders have to bid unconditionally. Frequently, properties are now passed in (clearance rates are now below 60% which is a sign of a falling market). Frequently they are sold post auction however subject to finance.
A successful sale could now depend on the negotiating skills of the agent, whereas before, the auction process usually secured the sale. Selecting an agent with those skills is now more important than ever.
The average time properties are on market has grown. What used to be a four week marketing campaign followed by an auction sale, vendors should be prepared for an 8 week marketing campaign in order to get full market value.
Who is buying and who is selling.
Given the changed circumstances in the property market, people have to change their approach to buying and selling.
Many people used to buy the house they wanted, then arranged the finance and sell their existing property. We saw a recent situation where a purchaser was unable to either sell their home or obtain bridging finance and lost their $150,000 deposit – ouch!
When buying and selling, a person should first sell their home (perhaps on a long settlement), then finds the property they want. Even if they have to rent (and store furniture), this is better than risking losing their deposit if they can’t settle on the purchase.
In areas where Asian buyers were active, that buying has dropped off significantly. Some agents are even reporting there are Asians selling property.
Some investors have decided to cash in their property holdings, as they can’t see any price increase in the next few years, and fear further price falls.
This has meant that the first home buyer is finally back in the market as the prices come down, there is less competition for properties and there is more affordable stock available (from investors).
Some see this is an opportunity to up-size, as they don’t have to pay so much for the property they want (with a stamp duty saving), or can buy a better property for the same money. Others are holding back to see what happens to prices, however it is always difficult to pick the top or the bottom of any market.
Prices have clearly declined since their peak in 2017 with most of the decline occurring in the last six months. However the decline has not been uniform across all areas or all types of property.
Our agents report that established house prices are down around 5 – 20% - depending on the quality and location of the property. Properties with some unappealing feature (main road location, needing work, poorly presented etc.), are more heavily discounted than well located, well presented properties.
It appears that higher value properties (i.e. $1.2m.+), poor quality apartments and development sites have declined 10 – 20% from their peak.
Prices for more affordable established homes (i.e. $550,000 - $750,000) appear not to have been affected so much, with price declines more in the 5 – 10% range.
As developers are finding it difficult to get finance and their end product is reduced in value, development sites have seen significant price falls.
In suburbs such as Broadmeadows, Pascoe Vale, Gladstone Park, agents report house prices down 5 – 7%, mainly because these are affordable properties.
Agents believe that in the Hawthorn, Kew, Camberwell areas, older style apartments have generally held their value while newer apartments have fallen by 15%+.
When asked about where they see prices in the next six months, agents expect more price falls although they don’t expect anything too dramatic – perhaps another 5% (remember agents are by nature optimistic). Much depends on the availability of finance (rather than the cost of finance), so an interest rate reduction is unlikely to have much effect on property prices. An interest rate rise would however have an impact, as it would limit borrower’s capacity to borrow and service a loan.
Agents see a relatively strong economy, low unemployment, low interest rates and a growing population which underwrites property demand and property prices. As vendors adjust their prices, there are buyers there, providing they can get finance.
Most agents don’t see the May election as an issue affecting property. Nor do they see people buying to secure a negatively geared property ahead of a change in government. They also don’t see evidence of mortgage stress from vendors.
So what does this all mean?
Properties are still selling, but in reduced numbers (20%), for reduced prices (up to 20%) and taking longer to sell.
In the past six months, it has become a buyers’ market, and vendors have to be realistic about their price expectations to ‘meet the market’.
Current Bank lending policy is impacting on people’s ability to borrow. This puts some buyers out of the market and others have to reduce their offers on properties. When banks start to lend again, that will probably signal the bottom of the property cycle.
It takes longer to sell a property unless the vendor is prepared to heavily discount it. The value of properties may continue to fall, although it is not expected to be a major fall.
When selling a property, it needs to be well presented to the market, as it is competing with all the other properties in the area in that price range. Buyers are selective and vendors should get professional advice on presenting their property for sale. It is important not to over spend on improvements, just spend enough to make the property appealing to as wide a range of people as possible.
Vendors should understand what their property is worth, what should be done do to present it for sale, and select an agent who is a good negotiator. Obtaining a valuation from a registered valuer can also assist in understanding it current market value, rather relying on a real estate agent who may well be talking up the price to win the business.