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 3-6 months.
Picking the top or a bottom of any market is always difficult, but our survey suggests that we may be at a turning point in the current property market, at least in the short term.
We hope you find this of benefit to you or your clients who are considering buying or selling property.
Agents report that there is an under-supply of quality established residential properties for sale, and an over-supply of new apartments, poor quality apartments and development sites.
The number of properties on the market are well down from 12 months ago, with many vendors holding back from selling due to the price falls. This has led to a shortage of quality properties on the market.
However agents report an increase in property transactions in the past three months.
Bidders at auctions are still relatively few and it continues to be a buyers’ market. However agents are far more positive about demand for properties than they were late last year.
A good measure of future buyer demand is the number of people attending open for inspections.
Agents report around a 50% increase in attendances at opens from late last year, with most interest arising in the last three months. There is particular interest for the more affordable properties and for those that are well presented to the market.
Agents report a change in sentiment by property buyers over the past three months, and expect a continued increase in buyer demand due to:
· low interest rates (which are expected to be even lower),
· banks becoming more flexible with finance with the lowering of the serviceability tests ,
· no changes in capital gains tax,
· retention of negative gearing and
· the proposed Governments 1st home buyers deposit guarantee.
There is a general belief that over the last 12 months, a number of buyers have been holding off from buying, expecting prices to fall further. However they now have to re-think their strategy, given the election result and a probable change in sentiment.
The Biggest Impediment to Buying.
It is said that bank credit is oxygen for the property market.
The biggest challenge buyers have faced is obtaining bank finance. Agents believe this ‘lack of oxygen’ was the largest single driver of property price declines during the last 18 months.
However, we are starting to see some easing of credit restrictions.
APRA has lowered the Banks serviceability test for borrowers from 7.25%, to 2.25% above the current interest rate. This means borrowers will be eligible to borrow more – and they probably will!
In addition, the Reserve Bank has indicated that at the next meeting, an interest rate reduction is likely, with a further reduction later in the year. This will not only make loans cheaper, but more borrowers will qualify for larger loans.
Don’t be surprised to see the current cash rate of 1.5% down to 0.5% by the end of next year!
Method of Sale.
Auctions are still the preferred method to sell homes in Melbourne, although the use of ‘expressions of interest’ and ‘private sale’ have increased in popularity.
In this market, not all properties are suited to be sold at auction. It depends on the type of property, its value and its overall appeal. Sale by ‘expressions of interest’ and ‘private sale’ are replacing auction campaigns where there is unlikely to be multiple bidders.
The auction clearance rates have been improving over the past few months to over 60%. This indicates that vendors have reduced their price expectations, and buyers are prepared to meet those prices. The agents believe that this is a sign that the market has probably bottomed, and may slowly increase from here.
Buying ‘subject to finance’ is becoming common, and Vendors need to factor in this possibility. This frequently doubles the time it will take to sell a property, so its always best to sell before committing the funds elsewhere.
Given that less properties are sold ‘under the hammer’, a successful sale could now depend on the negotiating skills of the agent. In the past, the auction process usually secured the sale.
Selecting an agent to sell your property with good negotiating skills, is now more important than ever. It is one of the criteria we use in selecting real estate agents for our clients.
Property prices have declined between 10% and 20% since their peak in 2017, with most of the decline occurring in the second half of last year.
Although it is still considered a ‘buyers market’, the agents we surveyed believe that house prices have now stabilised, and most expect a possible 5% increase over the next 3 – 6 months.
Properties with any unappealing features (main road location, needing work, poorly presented etc.), are less sought after than well located, well presented properties.
Developers still find it difficult to get construction finance on new projects, so are very selective in what they buy. Properties with residential Development Permits are difficult to sell, unless they are well positioned.
Although agents are naturally optimistic, they see a relatively strong economy, low interest rates and a growing population which underwrites property demand and property prices. People attending open for inspections and auctions have increased, credit is becoming more available and sales volumes are increasing.
Perhaps agents are justified in their cautious optimism that buyers sentiment has changed.
So what does this all mean?
Quality residential properties are still in short supply. If selling a property, it is important to ensure it is well presented to appeal to the greatest number of buyers.
The unexpected election result has changed sentiment with many property buyers. People who were waiting for lower property prices, are likely to change their strategy and get into the market, especially if prices show signs of increasing.
The retention of negative gearing and unchanged capital gains tax has been well received especially by investors who have been absent from the property market in recent months.
The lending policy of banks has impacted on people’s ability to borrow which has led to declining property prices. With the lowering of serviceability tests for borrowers, the availability of finance will increase. If interest rates fall further, then more borrowers will qualify for larger loans.
The proposed 15% Government deposit guarantee for 1st home buyers will also enable people to purchase properties sooner (and for more). When introduced, it will add to the demand for the more affordable properties.
The big rise in bank share prices following the election, suggests that the share market believes lending will increase which will support property prices, and the concerns about further property price falls have disappeared (at least for now).
The agents we surveyed believe that sellers have adjusted to the lower prices, property prices have bottomed and can be expected to increase over the next 3 – 6 months.
At present it is still ‘a buyers market’ however buyer sentiment may be changing. If Auction clearance rates continue to improve (say 65%+) over the next few months, this is one indication that buyer sentiment has changed.
There are the negatives of rising unemployment and a softening economy, but with all the positives, maybe property prices have bottomed, and could rise from here, at least in the short term.
Before you sell, you should understand what your property is currently worth, what you should do to properly present it for sale, and select a local agent who is most suited for your property.
We are always happy to talk to anyone thinking of selling their property who may need some advice on strategy, or if they would like to find out about using a vendor advocate to manage the sale process.
Tower Property Advisory