Melbourne Auction Results – June 30, 2014

Solid Auction Results but What’s Going to Happen in the Future to Prices?

There were only 640 auctions reported over the weekend to the REIV after 728 were originally scheduled to go under the hammer this weekend. Accordingly it’s expected that the auction clearance rate of 75 per cent may decline during the week as the Real Estate Institute gathers the remaining results. 

At the moment, many properties are either selling on auction day or within a week after the auction. Consequently, despite it being the beginning of school holidays and an expected quieter period for property sales during winter it’s anticipated that the weekend clearance rate may not vary too much downward.

“In the other capital cities, low interest rates have been helping to support stronger purchaser activity, if not stronger price growth.”

If March auction results are anything to go by, RP Data expects new records to be set this year with the method of sale vendors use.  At the end of the March quarter, 30.6 per cent of sales were conducted via  auction compared to 21 per cent last year, and the previous high of 20.8 per cent in 2010.

Latest figures show the average time on market for houses sold at private sale tightened from 35 to 34 days. Vendor discounting softened slightly over the week, to -5.6 per cent, compared to -5.5 per cent over the previous week.

BIS Shrapnel Forecasting the Property Market

According to leading property industry analyst and economic forecaster BIS Shrapnel, the momentum in price growth that emerged in 2013/14 is expected to continue to support prices over the following year but to a lesser extent in 2015/16. However, rising construction and the potential for oversupply in many markets, together with an eventual tightening in interest rate policy, will impact on prices and potentially create conditions for price declines by 2016/17.

Photo courtesy of: Flickr Creative Commons/Rob Deutscher

According to the company’s Residential Property Prospects, 2014 to 2017 report, tight markets and low interest rates have been the catalyst for the strength in the Sydney, Melbourne, Perth and Darwin markets over the past 12 months, as well as an emerging upturn in Brisbane. In the other capital cities, low interest rates have been helping to support stronger purchaser activity, if not stronger price growth.

BIS Shrapnel senior manager and study author, Mr Angie Zigomanis, says that although prices have been rising in a number of capital cities, affordability at current interest rates are sufficiently attractive to maintain further price growth for now. Rising construction pipelines have not yet worked their way through to completion and therefore supply, so pressures in most markets still remain. Read more.

The Wealth Effect

Over the weekend I went shopping with the family and noticed a real difference in the crowds. Firstly there was a massive queue to get into the parking area at South Wharf. Now I’ve been here many times before but never seen anything like this. There didn’t seem to be any conventions at Jeff’s Shed so I was very surprised.

The shops were packed and people were actually buying not just looking! When I see something like this happening my optimism rises and I look for reasons and what the consequences are likely to be going forward. For those of you who follow my commentary you would know when I mention the words “Wealth Effect”.

“The enormous supply of inner city apartments in Melbourne will certainly hurt the property market but a projected stronger Australian economy will shield and should stabilise property prices.”

The wealth effect is an economic term, referring to an increase (decrease) in spending that accompanies an increase (decrease) in perceived wealth.

So what’s the increase in perceived wealth for a number of people? Property prices, this has helped buoyed car sales, consumer confidence and drive retail sales. As new homes are bought so too is furniture, whitegoods and other households needs which all add up to boost the economy. The Reserve Bank of Australia understands the strength and positive ramifications of the property market which is why they stimulated this sector of the economy by using lowering interest rates.

Is the Melbourne Property Market going to Collapse?

It’s unlikely that the current property market will collapse because as I mentioned to someone over the weekend, “that would mean prices for 2 bedroom units would go below what I paid for them in 1997 – $91,000 in Ivanhoe, and quite frankly I can never see this happening.” Of course this would be the same for any other property asset although as we have seen already some property will inevitably perform better than others.

Rising interest rates are expected late 2015 and the enormous supply of inner city apartments in Melbourne will certainly hurt real estate prices and rental demand in those areas but a projected stronger Australian economy will shield and should stabilise property prices in the long-term.