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Is the Market Turning?

After a strong start to the year, every agent seems to have an opinion about how the market is performing.

With all the doom and gloom over the federal election, predicted interest rate rises, the war in the Ukraine affecting household needs and the expectation that property prices will drop by 5-15% in the next twelve months, reporting is capitalising on the ‘negative speak’ and downgrading what is actually a ‘positive’. For instance, PropTrack suggested that ‘price growth has slowed’ compared with this time last year. For Melbourne price growth has gone from 25% to 18% from March 2021 to March 2022. Let’s take Home Owner X, who bought a property in March 2020 for $1,000,000, had a price increase to $1,250,000 by March 2021 and by March 2022 it was worth $1,475,000. It’s still GROWTH!! And massive growth!

 

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If you look over Auction results for April 2022, on Saturdays, realestate.com.au have first reported results of 85%, 80% and 81%, demonstrating a strong seller’s market. The first weekend of April was the strongest weekend of the year with 1750 homes going under the hammer. However, look at those results later in the week, and we generally get a better understanding of the market when more auction results are released. Agents usually buy their time to get more buyer enquiry when they don’t report their ‘passed-in’ Saturday result, giving potential buyers a chance to call the agent to question why the results haven’t been released, presenting agents with more opportunities to explore new buyers or enabling them to negotiate with buyers on the edge of the seller’s asking price. Agents are more confident in providing a positive result with delayed reporting or concede with a ‘passed in’ result with the potential to report later offers. You will find that that percentage in the 80s drops to a more accurate Victorian average of 68.5%, which is suggesting a turn towards a level playing field.

 

Besser and Co, Managing Director, Dion Besser concurs, “Although there seems to be a little heat coming out the market, we are starting to see investors slowly reappear in the market. Open for inspection numbers at open homes remain strong for good family homes leading to continued strong results.”

 

CoreLogic reports that Melbourne’s inner suburbs have a selling rate of 63.8%, the inner east 68.4% and the inner south of 74.6%, which is positive data for Besser and Co’s staple sub-regions.

 

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Besser and Co’ score market will consistently tick along because investors and families differing needs will continue to thrive. Dion continues, “The apartment market has undergone a massive transition over the past 2 years with rental prices being affected and new rental legislation rolled out. This has led to very little gains over the past couple of years allowing for good opportunities for 1st home buyers and investors to enter.” Investors are now understanding the new mandates imposed by the new Residential Tenancy Act that was implemented in March 2021 and seeing rental prices increase dramatically as vacancy rates go back to pre-Covid times and there is more confidence to re-invest in the property market knowing that renters will give them a respectable yield. There is more demand for inner city apartments and surrounding areas with people returning to the city for study or work, enjoying their country family home that they bought in Covid times on the weekends while needing a city pad during the week.

 

REIV President Adam Docking explains, “while the quarterly data reported a 0.3 per cent drop in metro house prices ($1,121,500) and a 0.9 per cent decrease in Units and Apartments ($684,000), the annual median house price rose 18 per cent from $932,500 to $1.1 million in the last twelve months. The Victorian residential market has recorded strong growth for over 2 years and as supply catches up with demand, we can expect to see a steadier period,” says Mr Docking.

 

Seeing the quarterly results gives us a better understanding that the market may be turning. The reason why metro house prices may have dropped slightly is because if we look at the first weekend of April auction results where 1750 homes were offered for sale, there were only 1059 homes offered for sale for the same weekend in April 2021. With more home owners wanting to capitalise on the strong market, there is going to be less buyers per property to create competition, creating the opportunity for less sales and less price growth. Melbourne reported -0.2% monthly change in prices between March 2022 and April 2022.

 

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The bigger concern will be to see how interest rate rises affect home owners who have used their increased equity to buy caravans, boats and upgrade their cars to tow their new ‘investments’ or refinanced for renovations which they begin and go over budget because of soaring labour costs and ‘hard-to-find’ building materials. Will house prices turn so much that they will owe more than their property is worth? And will they be able to afford the repayments or be forced to sell to live in something more affordable? It all depends when they entered the market… If at its worst, predictions suggest a 15 per cent down-turn in property prices, Home Owner X will go from a property worth $1,425,000 to $1,211,250… but still $211,250 over their March 2020 purchase. The question will be, if their $800,000 mortgage (assuming they bought the home with a 20% deposit in March 2020) at 2.25% of $3068 per month goes up to 3.25%pa to $3492 per month, taking an extra $424 out of the family budget. This could be damaging to some. However historically, interest rates have increased between 1.5-2% in the 18-months following the first increase. That could mean an extra $848 a month for our Home Owner X. There is a whole generation of buyers who have never seen a rate increase and won’t know how to react, as there hasn’t been a rate increase in 11 years. The key, for Home Owner X, will be to ride the wave.

 

So, is the marketing turning? Ever so slightly, yet we will see more once the election is over and how the Reserve Bank’s announcement on the 7th June 2022 affects home ownership. The strength will be in the investor market as renters pay premiums to put a roof over their head and investors capitalise on those panic selling after interest rates rise. There will be interesting times ahead.