We survey a number of real estate agents across Melbourne for their views of the current residential property market, and what they expect for the rest of the year.
Our June survey accurately picked the bottom of the market where we said:
‘we may be at a turning point in the current property market, at least in the short term’.
Our survey suggests that the market will continue to improve, but not all areas will perform equally.
We hope you find this of benefit to you or your clients who are considering buying or selling property in the foreseeable future.
Property supply is down around 30-40% from previous years, and spring is the busiest time of year for real estate agents. There has been concern in the press that vendors would flood the market in spring, and the recent price increases would be short lived.
Agents reports are mixed. All have seen an increase in vendors preparing to sell their properties during spring, but some are not seeing the usual numbers expected. Some vendors are still holding back to see what happens in the hope that prices will continue to rise and regain their former levels, while others are getting ready to sell into spring. Agents don’t expect a flood of properties.
Agents still complain about a shortage of quality properties on the market, and advise what is available, is strongly sought by multiple bidders.
Six months ago many properties that went to auction had only one interested party, making auction sales difficult to achieve – remember when clearance rates were below 50%.
However agents now report that the number of bidders at auctions have increased significantly. Clearance rates are now consistently between 70% to 80%, with between 5 and 10 bidders for some properties. This shows there is strong demand, especially for the more appealing properties.
A good measure of future buyer demand is the number of people attending open for inspections.
Agents report around a 100% increase in attendances at opens from three months ago, with the unexpected election result being the turning point for property interest.
There is a general belief that over the last 12 months, buyers have been holding off from buying, expecting prices to fall further. However they now have to re-think their strategy, given the recent turnaround in property prices. This demand is pushing prices up.
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, and
· pent up demand from both buyers and sellers.
The Biggest Impediment to Buying.
The biggest challenge buyers face is obtaining finance approval especially finance approval pre-auction.
Agents now see people able to get pre-approval from their bank, so they can bid at auctions. This has had a big impact on auction results.
In addition, the Reserve Bank has indicated that it expects interest rates to remain low for some time and are prepared to reduce interest rates further if needed. This will not only make loans cheaper, but borrowers will qualify for larger loans. This has helped improve buyer sentiment.
Don’t be surprised to see the current cash rate of 1% down to 0.5% by early next year and maybe even lower!
Method of Sale.
Until June this year, private sales, sale by fixed date and off-market sales were popular, with few properties being auctioned – mainly because clearance rates were below 50% and in some suburbs as low as 20%.
However in recent months far more properties are being offered for auction as there are multiple bidders pushing the price well above the expected price.
Auction clearance rates have been improving and are now close to 80% and in some suburbs closer to 90%.
Auctions are now back as the preferred method to sell homes in Melbourne.
However not all properties are suited to be sold at auction. It depends on the type of property, its value and its overall appeal. When preparing to sell, vendors should get a few agents opinions on which method of sale should get the best sale result.
The increased clearance rate indicates that vendors have reduced their price expectations, and buyers are prepared to meet those prices, often competing strongly with reserve prices being greatly exceeded.
Until June this year, property prices declined between 10% and 20% since their peak in 2017, with most of the decline occurring in the second half of last year.
The agents we surveyed believe that house prices have now increased between 4 – 10% in the past three months (official figures say 4% across Melbourne in the quarter) and the agents expect a slow firming in prices for the remainder of the year (perhaps another 4-5%).
Properties with any unappealing features (main road location, needing work, poorly presented etc.), are less sought after than well located, well presented properties. The better properties have increased at the higher end of the range as people compete for those properties with cheap money.
Developers still find it difficult to get construction finance on medium/larger projects although there is now demand for duel occupancy developments. Established developers with good cash reserves are buying larger sites, but are selective and opportunistic in what they buy.
Although agents are naturally optimistic, they see a relatively strong economy, low interest rates, easier credit and a growing population which will underwrite property demand and property prices.
We consider agents are justified in their belief that buyer sentiment has turned positive and should remain that way for the rest of the year.
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.
Buyer sentiment has turned positive with auction clearance rates towards 80% most weekends. This has been driven by the low cost of borrowing and banks freeing up lending. People who were waiting for lower property prices, have changed their strategy and are now actively seeking property.
The lending policy of banks had impacted on people’s ability to borrow which led to declining property prices. This has now changed. With the lowering of serviceability tests for borrowers, the availability of finance will increase. With interest rates falling, more borrowers will qualify for larger loans.
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 sale strategy, or if they would like to find out about using a vendor advocate to manage the sale process for them.
Robert Allanadale - Director