The atmosphere’s heating up in Melbourne’s housing market

by Antony Bucello & Catherine Cashmore

Melbourne recorded a 76 per cent clearance rate over the weekend – and although it may reduce when the mid week numbers are collected, it’s still the strongest result to date.

There’s an ongoing discussion between our politicians as to whether low interest rates indicate ‘good’ or ‘bad’ economic management, with Joe Hockey warning – correctly – that a further cut indicates a slowing, if not, “struggling,” economy, and Kevin Rudd shoring up his corner with the backhanded comment that this merely implies the opposition think ‘high interest rates’ must be a ‘good’ thing.

The last time the RBA moved interest rates so close to an election was back in August 2007 just prior to John Howard’s demise from office – except of course, at that point, the cash rate was lifted +0.25 per cent to 6.75 per cent with the comment from Governor Glenn Steven’s that;

“The world economy is still expected to grow at an above-average pace..” and noting the need to contain medium term inflation.

After Kevin Rudd entered office, house prices were at a peak, and two further increases in both February and March took cash rate to 7.25 per cent, after which the contagion of the GFC resulted in a swift ‘six’ consecutive rate cut cycle as we felt the worldly repercussions of a highly interconnected financial system regulated by fear and greed, teetering on the brink of economic collapse.

The swift reversal which sent us right back into a rate ‘hike’ cycle occurred in line with the Rudd stimulus packages, including the first home owner ‘boost’ which applied to contracts entered into between 14th October 2008 and 31st December 2009 and consequently, swathes of easy credit entered the housing market creating a short term price multiplier effect across all ranges and arresting the downward decline in household ‘debt’ growth.

The party could only last so long, and in response to the high Aussie dollar, subdued credit growth, declining asset prices and continued under-performance in the construction sector, the current rate easing cycle, which commenced 2nd November 2011, has been going on for 18 months.

The resulting eight cuts which leave us with the lowest cash rate in at least 50 years have been successful in taking some of the air out the Aussie dollar, albeit newly revised forecasts from Government indicate a worrying trend in rising unemployment, and cautionary words are emerging from the RBA as Governor Glenn Steven’s evaluates that;

“One’s assessment of prospects for consumption will be driven mainly by one’s assessment of the outlook for income, but will also be affected by expectations about asset values and in particular one’s view on whether housing prices are overvalued..”

Job ads fell by 1.1 per cent in July – the 5th consecutive monthly decline, and a cumulative 19 per cent over the past 12 months. Business confidence is waning with conditions at a 4-year low, household income dynamics worsening, and considering we have a tightly contested Federal election on the door step, there is little prospect of improvement in the near-term.

With the above in mind, it ‘seems’ a sensible move to pull the one economic lever the RBA have to hand, and provide ‘relief’ to “interest-sensitive spending and asset values.”

However, since the global economic crisis; the world’s banks have been concentrated on lowering rates in order to boost growth. The textbook model indicates the atmosphere will motivate an increase in lending for such items as homes, goods and services; however as we know, monetary policy is at best, a blunt instrument and whilst Governments can allocate at their discretion where to spend our tax dollars and pressure the banks to ‘pay forward’ the rate cuts gifted, they have limited influence on where cheap credit is spent (or for which asset it is lent) into the economy or to direct it into areas where it’s needed most – which in terms of housing, would principally be construction.

However, as we know, the construction industry is not responding as desired, and instead, the gains are being felt in the established housing market.

Housing finance approvals rose solidly in June ahead of expectation, with ABS figures showing a seasonally adjusted 2.7 per cent increase in owner-occupied finance commitments which are now tracking 7 per cent above the five year moving average with the series up +14.2 per cent on the same time last year.

Loan sizes also increased – up 0.7 per cent for the month and 0.9 per cent for the year (a marked improvement from the beginning of the year) with the value of investor finance commitments up 18 per cent over the year.

ABS housing data shows nationally, prices have exceeded their 2010 peak – primarily led by Darwin, Perth and Sydney, with the other states still playing a game of catch up in median terms. And as I explained last week, for those of us who work ‘on the ground’ assisting purchasers, to describe the atmosphere as ‘challenging’ would be an understatement of terms.

Whilst Sydney is out in front of all States – principally due to a sharp drop in the number of listings for sale – Melbourne is exhibiting a near equal proportion of pent up demand and if you break the data down it’s clear that the larger share of activity is investor lead. Since March 2009, the average First Home Buyer mortgage has grown by only 1.8 per cent, whereas the average mortgage for the market as a whole has grown by 9.6 per cent.

Despite a tight macro environment, there’s little to suggest there is any change on horizon near term – we’ve certainly passed the ‘bottom’ of the market, although, how long the current rally will last is hard to predict.

Assuming rates are kept low for the foreseeable future, it’s fair to conclude there could be more stretch to the bow in terms of price appreciation, albeit, for those who are planning on making a purchase, I would strongly caution the need to get qualified advice to prevent the risk of overpaying in a tight competitive environment.

For the time being – high demand, for a reducing pool of second hand dwellings is pushing the established housing market into a sellers domain.

Weekend Clearance Rate Figures

Week Ending Sunday 11th August 2013

Clearance Rate:	76%
Total Auctions:	548 (42 unreported)
Sold:	414	Passed in:	134
At auction:	335	Vendor Bid:	71
Before auction:	78	Real bid:	63
After auction:	1
Total Private Sales:	459
Weekly Turnover:	873
Source: www.reiv.com.au

The NPB clearance rate is representative of the results evidenced in the ‘quality’ end of the marketplace. We take the results from a range of suburbs; however please note we are not ‘suburb specific’. NPB Melbourne, negotiate on hundreds of properties for their clients each year throughout all areas of Melbourne and the Bellarine Peninsula. The properties we highlight are taken from a selection which we carefully analyse for quality assessment and revise daily.

NPB’s clearance rate moving in line with REIV data– however it should be noted, the quality and quantity of ‘good’ listings are slowly reducing now we’re in winter, and this has increased competition.

Weekend Clearance Rate Figures

Week Ending Sunday 11th August 2013

NPB Clearance Rate:	86%
Total Auctions Reviewed:	51
Sold:	44	Passed in:	7
Under $600k+:	16		3
$600k-$1m:	18		2
$1m+:	10		2

Why is the NPB Clearance Rate always higher than the REIV Clearance Rate?

The NPB clearance rate is a snapshot of ‘investment grade’ or ‘cream of the crop’ properties representing only those we recommend to clients. These are properties that hold the best potential for a long term capital growth and rental demand. Whilst the Real Estate Institute of Victoria include all properties scheduled for auction (as reported by their members) – including those that are poorly located and unlikely to attract demand even in a robust climate; our clearance rate is far more representative of the market that represents our client’s best interests. It’s an important part of how we assess the best negotiation strategy for your needs.

The full list of the 51 properties reviewed by NPB this weekend:

< $600k

Suburb	Type	Beds	Quote	Result
Glen Iris	Apartment	2	$380k+	PASSED IN
Elsternwick	Apartment	2	$390-430k	SOLD $446,000
Brunswick	Unit	2	$450k+	SOLD $450,000
Pascoe Vale	Unit	2	$420-450k	SOLD $461,000
St Kilda East	Apartment	2	$400-440k	SOLD $464,000
St Kilda East	Apartment	2	$420-460k	SOLD $467,000
Elwood	Apartment	2	$370k+	SOLD $468,500
Prahran	Apartment	2	$390-430k	SOLD $472,000
Kensington	Apartment	2	$430k+	SOLD $475,000
Glen Iris	Apartment	2	$450k+	SOLD $489,000
Carnegie	Unit	2	$440-480k	SOLD $501,000
Reservoir	House	3	$450k+	SOLD $516,000
Northcote	Apartment	2	$480k+	PASSED IN
Northcote	Townhouse	2	$490k+	PASSED IN
Box Hill	Unit	2	$500k+	SOLD $545,000
Coburg	Townhouse	3	$500-550k	SOLD $560,000
Collingwood	Apartment	2	$550k+	SOLD $560,000
Preston	House	2	$500-550k	SOLD $563,000
Melbourne	Apartment	2	$540k+	SOLD $592,000
Sold	16
Passed In	3	NPB Clearance Rate 84%
Total	19

$600k – $1m

Suburb	Type	Beds	Quote	Result
Hawthorn East	Unit	2	$600k+	SOLD $676,000
Malvern	Unit	2	$550k+	SOLD $685,000
Brunswick West	Townhouse	2	$550-600k	PASSED IN
North Melbourne	Apartment	3	$580k+	SOLD $690,000
Preston	House	4	$600k+	PASSED IN
St Kilda	Apartment	2	$630-680k	SOLD $703,000
Oakleigh	House	3	$540-590k	SOLD $722,000
Toorak	Apartment	3	$650k+	SOLD $735,000
Thornbury	House	2	$630-700k	SOLD $740,000
Glen Iris	Unit	2	$670k+	SOLD $746,000
Ringwood	House	4	$540-590k	SOLD $761,000
Port Melbourne	Apartment	2	$760-795k	SOLD $770,000
Windsor	Townhouse	2	$750k+	SOLD $826,000
Brunswick	Townhouse	3	$700-770k	SOLD $855,000
Richmond	House	2	$700-770k	SOLD $869,000
Hampton	House	3	$770-840k	SOLD $875,000
Armadale	Townhouse	2	$800k+	SOLD $900,000
Thornbury	House	3	$765-840k	SOLD $910,000
Northcote	House	2	$800-880k	SOLD $935,000
Balwyn North	House	3	$790-860k	SOLD $989,000
Sold	18
Passed In	2	NPB Clearance Rate 90%
Total	20

$1m+

Suburb	Type	Beds	Quote	Result
Armadale	Townhouse	2	$900k+	SOLD $1,010,000
Balwyn	House	3	$800-880k	SOLD $1,060,000
Toorak	Apartment	3	$900k+	SOLD $1,080,000
Newport	Townhouse	4	$950k-1m	PASSED IN
Yarraville	House	4	$1.15m+	SOLD $1,249,000
Hawthorn	Apartment	3	$1.2m+	PASSED IN
Glen Iris	House	5	$1.3m+	SOLD $1,465,000
Windsor	House	4	$1.35m+	SOLD $1,610,000
Prahran	House	3	$1.5m+	SOLD $1,715,000
Alphington	House	4	$1.8m+	SOLD $2,100,000
Brighton	House	8	$2m+	SOLD $2,200,000
Camberwell	House	4	$3.75m+	SOLD $4,700,000
Sold	10
Passed In	2	NPB Clearance Rate 83%
Total	12

Overall

Sold	44
Passed In	7	NPB Clearance Rate 86%
Total	51

AUCTIONS IN THE SPOTLIGHT

CONTACT US

If you need any assistance with searching, assessing or negotiating your next property purchase or simply wish to discuss your property buying needs, please don’t hesitate to contact us. Alternatively, you can complete our online Help Us Help You form and we will contact you.

Regards

Antony Bucello and Catherine Cashmore

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