What’s Going to Happen to Property Prices as We Head into Winter?

Source: Axcess Marketing

The market posted a strong 74 per cent clearance rate this week, a result ahead of last week’s revised 70 per cent.

Year to date, over $4 billion homes have been sold via auction (compared to $2.9 billion for the same time last year), a number which would include properties sold prior to and via a passed in negotiation.

Now that sentiment has improved, a larger percentage of homes are gaining the competition to sell under the hammer. This has certainly been so from an anecdotal perspective.

Last week, the ABS released its monthly update on national housing approvals. In line with expectation, this showed demand for property has continued to increase throughout March.

The total value of dwelling commitments (excluding alterations and additions) rose 4.5 per cent (seasonally adjusted). The number of housing commitments for owner-occupied housing and investment housing also displayed a positive trend. Excluding refinancing, owner-occupier commitments rose a seasonally adjusted 5.2 per cent, which includes a welcome rise in the demand for new dwellings (up 2.9 per cent). A full breakdown is available on the ABS website.

The proportion of investors active in the market also continues to increase; understandable given the current low rate environment. Investors used to make up roughly 30 per cent of the national buying market; however, this has increased to roughly 36 per cent. In metropolitan Melbourne, just over 40 per cent of the buying market is investor lead.

Considering most investors shop with a budget around the capital city median – $450,000 to $550,000 – demand in this price bracket has been particularity strong and overwhelmingly focused on established property.

It’s well known that owner-occupiers and investors prefer established properties over new properties. The ABS data showed commitments for new dwellings comprised only 17 per cent of total market share.

It’s one reason the government continues to focus its attention on boosting the new home sector – first home buyer grants offer $10,000 for the purchase of a new home only. However, without addressing the underlying issues associated with consistent low demand for new property, it’s unlikely there will be a change to the status quo for the foreseeable future.

Agents have reported an increase in the number of first home buyers at inspections and auctions ahead of the changes to the current $7000 grant for established property, which is due to expire on the July 1. However, although in raw terms numbers have increased, as a share of the market first home buyers have fallen to 14.2 per cent from a previous 14.4 per cent.

As we move into winter, expect a seasonal drop in the number of quality listings available on the market and with it, an increase in competition for the limited stock available.

With this in mind, it’s vital investors are diligent when considering a property purchase. The temptation to get carried away with short term changes can result in prices being paid above what can be sustained over a long-term trend.