Winter overview and spring predictions

by Carly Susic 

Watching the Melbourne real estate market is always fascinating, and the winter season is no different. Today, we’re sharing what’s been happening over the market during winter. Plus, we’re giving our predictions for the traditionally busy spring selling season and specific advice for several types of home buyers.

 Is it the right time for you to buy or sell? Read on to find out. 

What’s been happening in the Melbourne real estate market over winter? 

Winter is traditionally a quiet season, and this year was no different with the federal election causing further uncertainty. In fact, the market almost always stalls during a federal election. Leading into the winter, market-quality stock has been low. We had some pauses in the market with school holidays running into Easter. Then, the Anzac weekend and the timing of the election at the very start of winter meant that the new properties coming onto the market has been slow. 

As the market slowed after December 2017, some homeowners have been reluctant to put their properties on the market, waiting for stronger conditions to sell. Consequently, that’s led to a scarcity of quality homes. Naturally, this causes more competition and buyers are bidding strongly for desirable properties. 

After the election and as winter continues, clearance rates are now up slightly. This increase in confidence in the market, combined with low stock levels has lead to more buyers competing for quality properties. In recent weeks, house prices in Melbourne have gained a fraction in value overall of 0.1 per cent, according to the REIV, June recorded the highest monthly clearance rate since April 2018. Plus, RBA recently set interest rates are at a measly one percent, in an effort to reinvigorate our flagging economy. 

So, what’s going to happen in spring? 

Even though there’s been a tiny growth in the market statistics, we aren’t seeing it on the streets yet. There are so many segments within the Melbourne real estate market which means just one random variable (such as a single ultra low or high price) can warp the numbers. 

What’s more important to us is what our clients are asking and what real estate agents are saying. 

One agent told me: ‘the market is starving right now.’ (Meaning starving for house stock.)

So, we’re really interested to see what’s coming in spring because it’s a traditional bumper season on the market. But, it’s also a season with plenty of interruptions in the form of the AFL finals series and the Spring Racing Carnival. So, it’s a stop-start season that can affect when you are looking to sell or buy at the right time. 

Plenty of people are waiting to sell so we are hoping the spike in clearance rates will give vendors some confidence to jump back into the market.  If this happens, we expect to see an influx of properties for sale in spring (we hope!). Consequently, this will then dilute the buyers across more available properties. Strong buyer demand could be just the ticket to kickstart the recovery the market has been looking for. We don’t think the numbers will claw back to where the market was in 2017. What’s more likely is a level, steady market. The media is reporting that we might be out of the woods, but our approach is always highly cautious.  Stock levels over spring will be the prevailing factor with good old supply and demand being the undercurrent. Only time will tell.  

Our advice for first home buyers in the Melbourne real estate market 

The market in the sub-$750,000 price bracket is quite competitive due to generous government stamp duty concessions. This effectively gives first home buyers up to a $31,000 bonus to spend on auction day (if the purchase price is below $600k). This concession scales back over $600,000 and stops at $750,000, giving strong demand for quality property in this price point. 

A note on quality 

There is a lot of new apartments on the market that we don’t regard as quality. What we mean is off-the-plan, inner-city high rises with up to 600 apartments. They’re brand new, they are everywhere in Melbourne and to us, they don’t represent a sensible purchase. (We’ll be covering this issue in more detail next month, subscribe to our newsletter to get our thoughts in your inbox.)  

So, given these concessions, we recommend first home buyers do not panic buy because they haven’t seen much coming onto the market. If you are able to wait until spring, you should find more properties become available. Then, you’ll be in a better position to compete for them. 

Our advice for downsizers

Unfortunately, your home is probably now worth less than it was in 2017. 

For example, let’s say you have a large family home in Camberwell and as an empty nester, you’re looking to downsize to a smaller, single-storey property in the same area. If your home was worth $3 million in 2017, and you use a 10% correction as an easy calculation (it is also what many agents will assume most properties have corrected by) it’s now worth $2.7 million. That’s a reduction of $300,000. But the property you’re interested in buying has also dropped by ten percent, but as it was worth $1.5 million and now about $1.35 million, it’s only dropped by $150,000. As the owner of a higher value property, you’ve taken a bigger hit on house prices. The market you’re exploring is also arguably a more competitive segment of the market due to the cash purchase of downsizers and the price also being more palatable to investors and families. 

Sadly, the offer you got two years ago just isn’t likely to be on the table anymore. If you can afford it, we suggest holding on to your property. (We realise we’re potentially missing out on your business by giving you this advice.) The small signs of recovery we are seeing may not blossom with more stock in the spring market. So, if you are not ready to sell now it is in you interest to wait. Essentially, it’s better to avoid selling in spring when competition is high.

Of course, we insist that any downsizer sell before they buy so you know your net position prior to purchasing.  

Our advice for upsizers

If you have a growing family or simply want to move up the property ladder, conditions are favourable for you. Admittedly, you are selling in a slower market, but because you’re buying and selling in the same market, you enjoy the benefits of that market correction reduction in value we mentioned earlier. Suddenly, that $3 million home in Camberwell is potentially worth $2.7 million (or the $1 million home is worth $900,000) and it’s in your price range.  

The only challenge in the current Melbourne real estate market is scarcity. There’s plenty of competition for great homes. Spring will be interesting as it will level out the market as more properties become available. There will be less competition in spring and there should be more choice for you as a buyer. 

Sellers: should I put my home on the market in these conditions?

We say yes. The old-fashioned view is to sell in spring when your garden is blooming and your grass is green. But we disagree. You can capitalise on the strong demand for quality at the moment by selling your house now this means an August or early Spring auction (before AFL Grand Final day) but you will need to be quick to act. 

Buyers: should I buy a home in these conditions? 

Our advice is: don’t panic buy. Buyers get anxious about the low volume of properties on the market particularly at this time of year. We find ourselves being broken records when we say “there will always be another one,” but there will! 

Buyers are still generally cautious, so you will be less likely to compete for properties when there is more to choose from in the spring.  The spring stock is really only weeks away so don’t buy something that you only want because you haven’t seen anything else for a while. This is where most buyers make costly mistakes because they are buying out of frustration. But, if you do find the right property  now in winter, that’s OK too. But it has to be the right home for you. Buy the one you want, that meets all of your criteria, that you can afford, when it comes on the market and hold it. So unless you find a great home that ticks all your boxes, we say wait until spring when more properties will enter the market. By the end of July volume will start picking up, with the commencement of campaigns for August and September auction dates. There is always another house around the corner.

What’s happening in the investor market?

At the moment, investors are pretty quiet. There’s plenty of competition from first home buyers due to their stamp duty concessions. Investor activity has peaked a little after the election (investors were worried about the ALP’s proposed negative gearing laws.) 

We’re curious to see what happens with about investors who took up interest-only loans three years ago when the market was booming. They’ll be coming up to the end of their three year period of interest-only repayments.  Will they feel the pinch of principal and interest repayments? We’re not sure that everyone will be able to manage it. If not, investment properties will potentially be going back on the market. We haven’t seen any great impact form this yet, but let’s wait and see what the coming  months bring. 

As to specific advice for investors, it really depends on the level of the market you are interested in. The upper level of the market is a good time to buy. But the lower end of the market is struggling with strong competition. There are some good finance deals on the market from lenders trying to lure them back into the market. There is a little blip in confidence right now, but we’re yet to see a total turnaround. So now may be a good time to strike. We’re being cautious here because there are so many variables in the market, it’s tricky for us to give general advice. We’d much rather you give us a call for a free consultation to discuss your needs, so contact us to book in a discussion. 

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