Susan McGlashan (right) of Bennison Mackinnon leads some very happy buyers inside for the sign up of 2/9 Shipley South Yarra. Bought under the hammer $2,195,000. 2 bidders. Strong.

At 6pm Saturday the James Clearance Rate on the 42 Million-Dollar-Plus Auctions we covered was 50%.

Our Demand Indicator, Bidderman, is down to 1.1  -  which is pretty amazing considering that a few months ago it was riding high at around 3.0.

Our Highlights

• Of the 42 auctions we attended this weekend, 26 had no bidders at all. Only 38% of homes attracted one bidder or more.
• In that most troubled of price ranges – the $2million to $4million market – only four properties were bought, and as we went to press 11 had not yet been reported as sold.
• The strongest sale of the day we witnessed was 51 Murray St, Prahran, which reached $3,740,000 for a great home on 600 sqm of land in Prahran (John Bongiorno, Justin Long and Adam Jack of Marshall White). Four bidders.

• Bayside – 32 monitored – 14 bought – 44% clearance rate (previous weeks 40%/46%)
• Boroondara – 45 monitored – 26 bought – 58% clearance rate (52%/70% )
• Port Phillip – 19 monitored – 13 bought – 68% clearance rate (54%/32%)
• Stonnington – 45 monitored – 26 bought – 58% clearance rate (65%/69%)

Most agents are reporting all results. On average Kay and Burton has the most unreporteds – but it still reports. The large majority of unreporteds had been passed in.

Glen Iris results were 9 sales out of 10 auctions, or a 90% Clearance Rate.

Port Phillip (Albert Park and surrounds) had a strong day compared to the previous fortnight

Boroondara and Stonnington had unseasonally (for winter) large stock numbers up for auction (45 homes each) and their clearance rate was less than stellar; but they still got away 52 $million+ homes between them.

Across Melbourne there have been an incredible 170 $million+ sales in the last fortnight, including the Queens Birthday weekend. That is 12 sales a day, which means that every second hour somebody is paying over $1million for a home in Melbourne. Clearly the market is not down and out; it is just wilting under stock pressures.

Prices or Vendor Expectations (to keep all agents happy) are clearly dropping as shown by the clearance rates; however, based on the number of buys, this market still has a underlying demand strength.

When supply reduces, as vendor human nature says it must, we would not be ruling out a quick price stabilisation and possible price increases – unless the demand parameters have changed.

Have Those Demand Parameters Changed?

We don’t really know for sure!

Our demand indicator Bidderman (which measures bidders per auction) was this weekend at a lowly 1.1 – but there were 141 homes up for auction in the key Albert Park, Hawthorn, Toorak, Brighton and surrounding markets. Which means you could say that this auction market has 155 bidders. If the number of homes on offer drops to say 70 and Bidderman rose to two – which is quite possible –  as a buyer, you would have less choice and a  rising market, even if  the overall market remained at around 155 bidders. When Bidderman is consistently at 2 and above we know we have a rising market.

Of course, earlier this year we had these sorts of auction numbers and Bidderman was at 3. That was mind blowing. The point is that just because Bidderman is at 1.1 that does not necessarily mean a big demand drop if we have an unseasonal quality or quantity of supply. When you see the actual number of homes bought it is unseasonal. We will know we have had a major market change when we see significant and seasonally adjusted drops in stock (supply), AND corresponding drops in demand (Bidderman). At that point you would have a a chance of prices freefalling, as occurred in late 2008. We think we have had a market supply change but our money is on this being a shorter term price correction, because solid demand is still there for now.

Price Drop – How Big?

A number of agents now publicly agree with our assessment that in the past five weeks the market has dropped between 5% and 10%, or at least lost the previous gains of 2010. This is a blanket statement which has its limitations – however we feel it is an accurate reading of market performance.

Jeremy Fox of RT Edgar feels the market has come off 10% since April.

Robert Vickers-Willis of Abercrombys feels it has dropped between 5% and 10%, and that it is simply because buyers have choice, no longer feel panicked and therefore will walk away rather than push on as they would have only a month ago.

James Connell of Marshall White and Gerald Delany of Kay and Burton feel the market has stabilised and do not believe there has been significant falls.

I think the mood is far more towards Jeremy and Robert’s view than with those agents who are saying the market is levelling. But it’s true that people like James and Gerald are very experienced selling agents.

For sellers of quality homes, there is still some strength in the market – providing you meet the new June 2010 price terms. The evidence is the fact that there were more than four bidders at a number of auctions: 77 Page St Albert Park (Andrew Stuart of Hocking Stuart); 41 Terry St Balwyn (Michael Nolan of Noel Jones ); 6 Mayrose Crescent Brighton ( Leigh Hallamore Buxton); 16 Van Ness Avenue Glen Iris (James Redfern Marshall White) and 51 Murray St Prahran (John Bongiorno Marshall White)

Price Drop – Why?

The evidence is all pointing towards this being a supply-based correction. What that means is that if the market gets back into some sort of equilibrium, it is possible for prices to rise again within a short period of time.  Supply is at record levels – this weekend saw a record number of auctions for any winter weekend and we have another one  next weekend. All this is following on from  a huge May, where many agents had record sales numbers and many buying agents  had record buys. However,  winter generally brings a cyclical decline in seasonal demand and, combined with the fact that we still have an overhang of unsold properties, a rebounding price surge does not seem imminent – even if supply does level out.

Opportunity

What does this mean for the buyer – opportunity! Opportunity to purchase at prices considerably below what you might have paid in April – and in some cases even below what you might have paid before the surge which started ramping up from November 2009.

The market is not a perfect beast – as the diagram below shows. The trendline  is in yellow. Of course all home sales are different and if you buy well in June you could have paid less than if you bought poorly in November 2009, despite the price surges (the red squiggle below represents indicative individual sale variances or market segments). On the other hand, if you are bidding against strong competition you could still be paying the same on some houses as you were a month ago. That is still a fair bit more than August 2009 and a lot more than the pits of the GFC in 2008 and more even than the peak of 2007.

GFC

Before we, as buyers, start getting into the champagne (that only our selling comrades can afford), it may be useful (or not) to remember that the impact of the GFC on the home market  lasted around a year in Bayside and Port Phillip (May 2008 to May 2009) and only six months in Boroondara (Sept 2008 to Feb 2009). If we ignore the stats for a moment, our “guts” are not telling us that is the same sort of market we saw two years ago. The drop in prices seem to be almost entirely due to excess supply, which means it may soon right itself.  That’s even though, as buyers, we might be hoping for a longer respite. But of course demand is a very fickle beast. Bad news may come tomorrow and, yes, our demand indicator Bidderman is down. But you do need to contrast that with the fact that we are seeing record sales, record auctions, record everything.

Stock Quality May Diminish

Going forward ( July to October)  the jungle drums will start beating hard and many sellers will hear: “Don’t go to market –  it’s not as good”. Those sellers who have organised lives, and these  tend to own the good homes we want to buy, will simply hold off and not put their homes on the market. This happened in Toorak and Hawthorn in late 2008. That means that the only good homes that will come on to the market will be forced sales and, unless we have a major economic change, forced sales tend to be few and far between . What does this mean? Less Supply!!  Who knows what will happen to prices then?  Especially if demand remains constant.

Longer Term Thoughts

Underlying demand still comes from population pressures such as migration and wealth pressures such as investing or buying for your children. To get a sense of that demand, don’t just look at  the stats. Hop in a car on a Friday night and go to Bay St, Brighton or to the Rivoli Camberwell or Chapel St or the City: it’s a gridlock and it’s getting worse. In the 1990s when we had demand reductions it took five and a bit years to recover –  but not now. Between 1990 to 1996 we were like a bowl of rising dough that rose from one third to two thirds of the bowl.  We had plenty of supply – plenty of inner city land, for instance, to redevelop. Improving demand put some pressure on supply without pushing the price lid off. But Melbourne in June 2010 is now a lot more developed. It’s like a full bowl of rising dough that’s had a nick taken out and the price lid squeezed back on. It won’t take long for that nick of dough to be taken up and price pressures to reignite and push the lid off.

Alternative Opinions

We have been very lucky to get agreement from Gerald Delany to give buyers a once or twice monthly opinion on what is happening at the Top End from a selling agent’s point of view. Its called G-E-R-A-L-D and you can view the first video in the right hand column on our marketnews home page. Please bear with me. In future I will be asking tougher questions and Gerald has assured me he will answer them going forward but I was feeling my way on this first one. There will be another one within a fortnight.

If we as buyers don’t or can’t listen to quality selling agents and take their comments for what they are – information and mostly good information – then we will reduce the chances of buying well.

We are also lucky to have talking to us two top Bayside agents (Jenny Dwyer and Barb Gregory), who happen to be female and happen to both work for Hocking Stuart. They, along with our own Kristen Hatt, will report once or twice a month on females dealing with men in real estate and what is happening in Bayside. Again it’s our first effort so be patient with us please. However any constructive feedback to kristen@james.net.au is welcome

We have a younger person’s video and two sparring auctioneers in the pipeline. This will be on this screen some time very soon.

The Rules Have Changed
This is the title of our new Advertising piece on the top right corner of the Market News Homepage. Although it’s a hard sell on why you might think about using us, it does make some salient points about Expressions of Interest and “Learning Fees” in real estate. If you need some extra reading to get to sleep then this may help; click in the top right hand corner title of the marketnews homepage – The Rules Have Changed.

A little bit of a different market insight this week – have had a few heavy ones on the Clayton Reserve so thought we all needed a breather.

We only buy homes

Mal

Prahran 51 Murray Street: The market gloom was no match for this home which got the highest rating for the year (926/1000). $2.9m+ quote - 4 bidders - on the market at $3,600,000 and bought under the hammer at $3,740,000. A very strong but not completely unexpected result for John Bongiorno and Justin Long of Marshall White.