Auction Attendance Down, but Clearance Rate Steady

Photo: Matt Ryall

There has been enough pre-election chitchat to assure sellers – and buyers – that housing values do not typically suffer from federal elections. 

I think in the current circumstance, a strong Coalition win will be enough to promote a sense of security, and perhaps relief, in Australians, who are not going to suffer a second term of minority rule with fractions in the Labor party overshadowing the political discourse.

How the Market Performed Over the Weekend

Housing values in inner and middle ring locations are performing robustly on the back of a rather heated auction environment.

The REIV noted that the biggest rises are occurring in areas where this method of sale pre-dominates – principally the inner and middle ring suburbs some 5 to 15kms from the CBD.

The auctions I attended on Saturday, although down in overall attendance due to the election, achieved healthy prices. A 74 per cent clearance rate was reported on the back of 441 results.

Will the Certainty That Follows The Election Inflate Property Values?

Some commentators have suggested that the certainty that typically follows a federal election will fuel the feel-good furore we’ve seen of late, thereby further inflating values.

However, analysis of this type always needs to be assessed in the context of our current financial prospectus, which in a post-GFC environment, is facing headwinds.

“Slowing income growth will pull short any extended ‘boom’ we’re currently experiencing.”

Importantly, we entered this election with a weaker economic outlook than the prior seven elections and there’s been a distinctive lack of any big spending policy promises aimed at the consumer. Instead, the rhetoric focused on cutting costs in order to return the budget to surplus at some future point.

A rise in household saving in itself reflects the still cautious consumer. Slowing income growth, along with an anticipated rise in unemployment levels (to 6.25 per cent) will, in my opinion, pull short any extended ‘boom’ we are currently experiencing in the established sector.

Investors are Fuelling the Market

This is not to dismiss the feel-good factor that will likely ensue from a now majority government.

It seems we have some way to go before investors give up their passion for real estate. The latest ABS data showed investor finance commitments are currently at their highest level since June 2007, and these commitments outnumber loan commitments from other owner-occupiers.

Housing finance approvals also rose ahead of expectation in July. The number of approvals for owner-occupiers has been on an upward tick for over seven consecutive months, and reached its highest level since October 2009.

Importantly, the approval trend for established dwellings continues to outpace new construction, which will do nothing to aid affordability for first home buyers.  

First Home Buyers are being Pushed Out

You’d be hard pushed to find a first home buyer shopping in our largest capital cities who has not been outbid by an investor throughout the course of this year.

Investors understandably have a stronger financial arm. Around 44 to 45 per cent of Melbourne’s buying market consists of investors.

The Real Test for Melbourne’s Property Market Will be Next Weekend

All in all, in light of a new federal government, the real test for Melbourne’s market will be next Saturday September 14, which would have been Election Day had Gillard retained power. 

It falls on the Jewish festival of Yom Kippur, which will significantly lower activity in suburbs such as Caulfield and St Kilda East. It will certainly test the market’s initial reaction to our newly elected government.