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Overview: Positive signs in Melbourne's Property Market

Where we were (looking at Melbourne's Property Market )?

Walking through an open home in February of this year and bumping into an investor, would have been akin to seeing a man riding a unicorn. It seemed that most had decided to leave their wallets in their pockets till they started to see a proposed resolution to some of the uncertainty around the property market. The idea of drastic changes to negative gearing was pushing savvy investors into other opportunities and as a result, open home numbers started to dwindle away.

One of the other contributing factors was the tightening of lending due to the ongoing royal commission into the banking industry. Adding these two factors together resulted in low open home numbers, more reluctance to bid at auction and weekly decreases in auction clearance rates.

As with all markets, the Melbourne property market is driven by supply and demand. Values began to decrease due to a drop in demand and a lack of new properties entering the market. Median prices decreased by an average of 15% across the board. The more affluent suburbs such as Kew fell by 21% while on the contrary suburbs with a lower median value such as Hoppers Crossing were less affected only falling by 7%. If you were to look back to the years between 2014-2018, where there was a high demand for property with minimal supply you could find instances where particular parts of Melbourne saw increases of up to 80%.

melbournes property market

What we started to see?

As buyer advocates, we spend most of our Saturday’s attending open homes and bidding at auctions. There has been a distinct increase in the time we spend standing in line at the front of the property waiting for the sales agent to check everybody’s ID. As we know, demand is what drives property prices upwards. The longer we wait in these lines, the better the evidence that we are seeing quite a bit of uptake in the demand stakes.

We had started to see home buyers being drawn back to the housing market on the back of rising prices and more accessible lending. Phone calls from clients with much better news from their mortgage brokers began to flow in. We even encounter the odd investor creeping back in during this time. Auction clearance rates stayed relatively steady in the high 50% range as confidence in the market was slowly returning. Though there was still a bit of uncertainty around how the coming federal election would affect negative gearing.

On the 19th of May, as the final votes were being counted and Scott Morrison was being confirmed as our Prime Minister, another layer of confidence started to flow in. Negative gearing had been one of the main talking points throughout the election campaign. As the Coalition retained control of the federal government and fear of this policy being affected stared to fade away, an increasing number of buyers resumed their weekly Saturday afternoon open home schedules, further contributing to the growth in demand.

From this point onwards, auction clearance rates stated to steadily increase on a weekly basis. On the 25th of May the rate sat at reasonable 58% while this weekend it came back with a respectable 77%. An almost 20% increase over a 4-month period. Auction clearance rates have always been one of the best indicators of the strength in the market, so the numbers we are currently seeing are very encouraging. Most current figures are quickly pushing towards a complete recovery from the percentage lost during the 2018 downturn.

Where are we now and what to expect moving forward?

Research from CoreLogic has shown that the September Home Price Index figures have increased by an average of 1.7%. This is accompanied by a 3.5% increase over the last quarter. Numbers such as these should be encouraging to homeowners and prospective buyers alike. The opportunity right now to enter the property market just as it has begun to improve again can put you in a situation of strong capital growth over the next few years.

Economists from the ANZ are predicting a further 3% increase over the final quarter of this year with an annual growth between 12%-13% over the next 2 years. Like with most predictions, nothing is quite set in stone, though the positive signs are there.

Conclusion:

I’m recent months the most common question I am being asked by my clients, family and friends is “when is the right time to enter or re-enter in the market?” The best answer to this would have been “3 months ago”, where it looked like Melbourne’s property market had bottomed out, though coming in now is also a great idea.

Confidence is high, people are out and about and sold stickers are popping up at an ever increasing rate. The age old saying of “Don’t wait to buy real estate, buy real estate and wait” is always a good model to live by. Short term strategies are always higher risk, while long term strategies may not deliver immediate rewards, but will build a steady stream of equity to build your portfolio further in the future.

One of our main goals at Alfy is to help our clients build a strategy towards an ever-expanding property portfolio. Whether you are are an investor or a home buyer, answering the types of questions the have been touched on in this week’s blog is what our team is passionate about. For a free consultation about how we could potentially help you, please get in touch with us by phone (03 9111 5798) or though the contact form at the bottom of this page.

Thanks again for reading,

Michael

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