A key focus for many buyers at the moment is to not pay too much. Fair enough -  it’s a healthy focus But if this is the only focus, then as a buyer of a good home or a good investment you may miss out on the main game – to BUY WELL.

Take a golfer who is totally pre-occupied with looking at the flag, until his partner points out the water hazard to the left. That’s good factual information and healthy to focus on if it makes  you change your aim a little to the right. But it’s an unhealthy focus if it becomes so encompassing that you end up duck hooking into the very hazard you are trying to avoid.

The hazard that all buyers, whether emotional home-buyers or first time investors, are trying to avoid is making bad decisions that don’t achieve their outcomes.

Let’s say your desired outcome is to buy a good home for your family, but also to make a good investment  purchase. In this market is that best serviced by a focus on buying a good home at a fair price or  by beating the agent and getting a discount? Of course both aims are worthy, but in my opinion the former is a more important focus than the latter.

Here’s a question: When are you more likely to be buying a good home? When the selling agent tells you a property is bargain? When you find yourself negotiating at 10% below the asking price? Or when you find you are competing against multiple bidders in an “on the market” auction?

The fact is that when there are multiple bidders for a property, it’s a clear signal that the property is likely to be a good future investment.  Multiple bidders signal consensus on price and that is good for capital growth; multiple bidders also signal that there is a high chance this is a good home.

Meanwhile, an obsessive focus on not paying too much is actually not a buying strategy and could even be counter-productive in a competitive auction situation.

Take this recent auction at 7 McClaughlin Sandringham.  This was a roughly 30 year old home on 1000 sqm plus, with an older-style facade, a bit dated but with a classy floor plan and internals. It was a good home and I was interested to see how it would sell.

Well after an opening bid of $1,500,000, a second bid came in at $1,550,000 and a third at $1,650,000. Another bid came in at $1,660,000, and then finally we were “on the market” at $1,710,000 – but by this point people seemed to be running out of money. Bidder number two was slow to bid while bidder three responded more authoritatively, nearly buying the home for $1,719,000. A fourth bidder then came in at $1,720,000, but didn’t look that strong and this seemed to allow the third bidder back in with a bid of $1,751,000. The final result: $1,752,000.

Not bad, and the under-bidders probably thought they’d given it their best shot, but my thought was that at least two of them looked weak and that was what let the winning bidder back in each time.  I can’t help thinking that there might have  been a different result if the other bidders had gone in with a different mindset.

It’s human instinct for others to battle on when they think the other party is injured and almost out of the race. If you’re the weak one, you may end up paying more or even worse missing out on the property,  when it is quite possible that the winning bidder would have stopped $10,000 below you if you had put in a stronger bid. The fact that you showed you were gone was what energised him for one last final effort.

So what are the real issues in this market?

1)     Get your main goal clear in your mind.

2)     Understand value before you start bidding. Why? Because uncertainty makes us all look weak.

3)     Sure don’t over pay – but don’t miss out either (as long as it’s worth it)

4)     Don’t assume you will have no competition

5)     Have multiple bidding strategies to deal with pass-ins, vendor bids etc but also have ones to deal with bullet bidding, strong competition, weak competition and so on.

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

There are enough quality stats out there to show that this year so far has been a great one for buyers. And it could become even more so, given the good post Easter stock levels and prices already around 10% lower than early last year.

But winter in 2011 is also bringing a certain level of uncertainty in the Melbourne property market. Will prices continue to fall lightly as they have been, or will we see an even bigger negative correction than is currently taking place? Could market prices rebound, led by healthy pockets of underlying unsatisfied demand once the May rush is over?

We just don’t know for sure. And uncertainty is something that home buyers don’t like. Sure they know there are opportunities, but there’s also fear.

It’s a bit like jumping off the Brighton Pier in winter, when it’s cold and you can’t see the bottom. You want to jump in because you know it’ll be a great achievement when you do, but you know it could also involve a certain degree of pain and also a fear of the unknown.

Fear of the unknown, of not being able to see the bottom, is an understandable, instinctive, emotional response.

Uncertainty can also be financially stressful, because of fear that you may be putting yourself into an elevated risk position. You might be buying a home that could be worth less next year than it is today.

But is that a risk that should put you off buying a property?

If you are buying a home to live in for say the next ten years, and history repeats itself, as it tends to do, and prices go up and down during that period, then buying in a “down” part of the cycle is no more risky than buying in the “up” part of the cycle.

Even if you are a short term buyer, is it any riskier to buy now when prices are lower, than it was a year ago? Not necessarily.

In fact, given that the top of the market was Anzac Day 2010, if you were a short term buyer and bought then with the plan to sell on Anzac Day 2012, then logically Anzac Day 2010 was a riskier time to buy than Anzac Day 2011.

If you’re a long term holder, it was even less financially risky to buy this Anzac Day than Anzac Day 2010.  Yet many more buyers were happy to buy in 2010 than 2011, as we can see from the sales volume stats.

The fact is that buying in a falling market doesn’t necessarily result in an elevated risk position.

Maybe if you are the kind of person who cannot stomach your home being worth less now in the eyes of the market than what you paid for it, then perhaps now is not the time to buy. The time for you to buy was at the start of a long term bull market, say Anzac Day 1999. (The trouble is that I was buying in that market and I didn’t know (for sure) that it was the start of a long term bull market and reading the press at the time neither did anybody else.)

And perhaps if you are a heavy borrower who is fully stretched you may have an elevated risk position if your lender makes a call. But how many actual forced sales occurred during a far worse decline in prices in Anzac Day 2008 during the time of the GFC?  Sure there were plenty of scary headlines, but few foreclosures.  And why? The fact is that it is rarely in the banks’ interest to foreclose in a falling market. They may get a lower price for the asset too, don’t forget.

Returning to jumping off the pier where you can’t see the bottom: you can survive and experience the pleasure if you take few precautions:  learn to swim , get some expert help and maybe have a back-up life buoy if you get into trouble.

Overall this market is better than a year ago to buy in. Will it be better than next year?  We can’t possibly know for sure. But buying now is not necessarily an elevated risk position. In fact you can further reduce those risks with some careful thought.

Mal James

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

Will we see last year's crowd numbers return for the opening of the 2011 auction season this weekend? Find out at marketnews.com.au on February 19th at 6pm.

Welcome to Million Dollar Melbourne in 2011

With the Auction Season Opener hitting us between the eyes on February 19, we know that the big question for buyers, sellers and agents is: What is going to happen in 2011?

The feeling in late 2010 was that the market was cooling and we shared that view on price – but we did not share that view on activity. The December market finished quite strongly activity wise.

What’s been happening so far in 2011?

During the last week in Jan, I personally went to 10 homes over $1million in Boroondara (Kew, Hawthorn, Balwyn, Canterbury etc). I was a little surprised at the solid numbers of people inspecting at all opens.

This past weekend (the first full one in February) I focused on Bayside, mainly Brighton, and it was very quiet, very different – with very few people.  The exceptions were 62 Dendy St (David Hart) – a new home on a busy street; a big home at 33 Middle Crescent (Campbell Cooney) and a great little home at 26 Moffat  (David Wilson). Why this last one hasn’t flown out the door yet I don’t know – we gave it a rating over 800. The other seven opens were poorly attended.

Flooding may have been one reason for the reduced activity in Bayside – this was only a few hours after that incredible rain. There were a number of cancelled opens due to inundation (a word we are hearing all too often at the moment) of garages.

Even so there is still plenty happening at Bayside’s Top End. 33 Chatsworth Brighton with 1300 sqm of absolute beachfront has just sold (with Stewart Lopez and Ian Jackson of Kay and Burton) for an undisclosed sum (we reckon around $12 million). And another property on the Golden Mile beachfront at Shandford Ave, with about 600 sqm, reportedly sold for north of $7 million with Nick Johnstone of JP Dixon. So  Bayside Top End is not exactly dead yet.

Next week we have a full book of inspections at quality homes on and off market in Stonnington. Look out for our reports.

So back to the season opener on February 19. This will be the first real public test of the auction market. What sort of stock numbers are out there at the moment?

Last year we used 100 auctions as the definition of a big Saturday. We had four of them in a row at the end of the year, after a very slow start to Spring caused by the election and then the election result uncertainty.

This February 19 sees 74 auctions scheduled – a solid start without setting the world on fire. It is February 26 that provides us with our first real 2011 benchmark with over 120 homes under the hammer. We think that weekend will be the first of about a dozen benchmark auction days we will have through 2011..

So what are the results we are looking at and what will they mean?

Bidderman, our bidders per auction indicator, is an important guide of demand. With Bidderman dropping to around 1 late last year we saw prices drop. A similar number on the first Super Saturday will not be a good sign for sellers especially because there is good stock quality on both auction days (hence no excuses), so a low Bidderman will indicate a genuine lack of interest. If that were to continue we would definitely see a drop in prices. Of course it will be a different result if Bidderman averages more than 2 bidders per auction.

The other important measure is clearance rates. These strengthened towards the end of last year –  not because buyers went berserk but because sellers were forced to meet the diminished market conditions. We had a “strongish” late market because of seller flexibility.

What will the clearance rate numbers mean? If the clearance rates at for these two auction Saturdays are in the 50% range we would consider the market to be soft, marking the beginning of a buyers’ market. If clearance rates are between 60 and 70% for both weekends then it’s fairly balanced. If the clearance rate is around or more than70% then the market noise would be strong and, depending on stock levels going forward, prices may move upwards.

CAV slackens off on Conflict Of Interest issue

One item of news that has snuck under the radar is Consumer Affairs slackening off of the old Section 55 of the Estate Agents Act. This set out a rigorous process in cases where agents want to buy vendors’ homes that are being handled by their own agency, for instance where a Hocking Stuart agent is buying a Hocking Stuart advertised property. Consumer Affairs has severely diluted the strength of the legislation by saying it no longer requires an independent valuation and that an unqualified representative can sign off like a lawyer or an accountant.

This dilution is dangerous and is being driven by either ignorance or laziness on the part of CAV. Selling agents are not asking for it; in fact many ethical agents abhor CAV actions in this matter. We all need checks and balances.

The Consumer watchdog has abrogated its responsibilities, leaving vulnerable old ladies and others to be taken for a ride.

We don’t think agents should be allowed to buy a property handled by the agency they work for at all – there is just too much conflict of interest. But if the law and CAV allows this to continue there MUST be rigorous checks and balances in place to protect the vulnerable.

Imagine if the police weakened their stance on fraud because they wanted to streamline their paperwork. This is not good enough CAV.

On a lighter note, over this year 2011 we will be bringing you even more information, more sold results, more stats, and more detailed analysis.

We will also be back to the job we love most – buying great properties for our clients. After one week back, we’ve already made our first client home purchase for a property in Thomas St Hampton. After six weeks away with the kids  - we need to get our sanity back. So bring on those auctions.

Buy Well.

Picture of concentration: Tim Fletcher (Fletchers) at 2 Barnsbury Rd, Balwyn. Bought after auction $2,585,000, 1 bidder

Key Points:

• Crowds smaller and less bidders with a clearance rate at 62% – lowish for Boroondara, however there were around 50 auctions over $1 million.
• Hottest market is for the $1,200,000 to $1,600,000 double fronted timber home in need of some work with a market price tag on it.
• Scott Patterson MD of Jellis Craig: Clearance Rate expected around the mid 60% level, but that is normal for this time of the year. The Asian community is complaining about the high Aussie dollar and their market is tracking down. Well credentialed and well-priced homes are going, but those vendors priced a little bit too high are simply not selling. A high ask strategy is nowhere near as successful now as it was this time last year or even earlier this year.

Highlights:

• Kew, 50 Charles, Paul Keane of Jellis Craig – going nowhere for some time then some interest, then – bang: a boardroom auction and a result well north of $4,200,000 was achieved on the night.
• Hawthorn 41 Wattle Road – good home on the market for some time. Bought for well over $5,000,000 also through Paul Keane Jellis Craig
• Balwyn 6 Ropley Laurence Murphy of Hocking Stuart – brand new French provincial believed to be over $3,000,000. The Aussie dollar may be hurting but the market still has a passion for these sorts of homes.

$3m+ not so highlights:

• Hawthorn 5 Yarra: Passed In $4,500,000: Zero Bidders
• Canterbury 35 Logan: Passed In for $2,860,000: Zero bidders

Agent Q & A: In terms of real estate, what has happened this year and what do you expect to happen next year?
Scott Patterson, Jellis Craig, Hawthorn:“2010 started very strongly with healthy demand in February and March.  Sellers realised that this might be their last chance to capitalise on a rising market so they flooded the market in May and June.  Increased volume had an adverse affect on auction clearance rates and we started to see a softening in the market by about June.  School holidays interrupted July and then we had the Federal Election in August which was unresolved for several weeks – again adding to the uncertainty.  Clearance rates dropped back to around 70% compared to 85% in 2009.  September/October saw two football grand finals play out, which meant the predictions of a late Spring were correct.  An interest rate rise on Cup Day and the threat of further increases has dampened enthusiasm and we now see clearance rates hovering around 60% compared to 80% for the corresponding period last year.  On a positive note, properties in quality locations are still attracting strong interest – however it is fair to say that we are noticing less desperation amongst buyers.  Vendors now need to revise their expectations if they are serious about selling this side of Christmas, otherwise the market will go to sleep from December 24 – January 18.  Next year will be ‘steady as she goes’ in my opinion.  We are predicting slow growth rather than the dramatic price increases we have seen in previous years.  A lot will depend on interest rate rises next year as a series of rises tends to affect buyer confidence.”

This coming weekend is a “Super Saturday”, one where the market has  a larger than normal amount of stock on offer at auction. We call them majors, and for agents and market watchers they are like the Masters in golf or the Grand Final in footy.

Why do they occur? They happen because of Melbourne’s numerous public and school holidays, and because of our obsession with big sporting events like the Melbourne Cup and the Grand Final, which interrupt even the momentous occasion of home buying and selling.  Smart agents plan holidays around these times in order to stay married and in touch with kids. So miraculously, few auctions or opens seem to fall on holiday time.

Many high end homes are sold by auction, which by tradition takes four Saturdays to arrive at its crescendo. So avoiding holidays and sporting fixtures for a four week run is considered vital.

Another point is that human beings are herd animals. We like to sell homes in the New Year and in Spring and we are not keen on selling in Winter. As buyers we can only do our thing when the home stock is there to do it. So our buying activity follows the selling patterns.

At this time of the year, in order to have a clear four week auction campaign you need to start after Grand Final and finish before the Melbourne Cup.  Only one Saturday qualifies for that timing – the 23^rd of October. Hence the more than 1000 auctions across Melbourne and the more than 200 $M+ auctions in this magazine’s focus area – a Super Saturday.

In Spring there is often a Super Saturday just prior to the Grand Final, but the election uncertainty ruled that out this year. There will be one or two in late November/Early December, especially because of the likely late finish to the markets this year. That’s due to the nervous nellies who waited and waited and those who bought late and therefore could only sell late.

Next year we will get Super Saturdays in the last two weeks in February. The Australia Day weekend is the starting gun for the markets and four weeks later, like a quick romance, the babies begin arriving. The following Super Saturdays are determined by fitting in selling campaigns between Labour Day and Easter. And finally there are always one or two pre-winter Super Saturdays in May – depending on school holidays and Easter.

So why are they important? Well, they are a real battle where large numbers of gladiators (some without a bloody clue) do battle all across Melbourne. With 10 skirmishes in Glen Iris, 14 brawls in Toorak, one or two scuffles in Canterbury and a couple of rip roaring ding-dongers in Brighton the generals (agency owners) will get clear feedback on where the fighting is headed and what the strategies should be in the aftermath. With today’s communications most selling agents and some buying agents can get trend knowledge by midday from 10.30am results and can apply this to the afternoon auctions. That is why we go to so many auctions.

Mere mortals will get this knowledge a bit later. So by this time next week as you prepare to put your bets on, we all should have a pointer as to what will happen in the property market between Melbourne Cup and Christmas. Bring it on – we love these Super Saturdays. They let us all know what is really happening in the market.

Printed each week in The Weekly Review – Melbourne’s Million Dollar Plus Magazine

Not Happy James: 3 Scott Hawthorn: Passed In for $1,260,000. 1 bidder.

Key Points

• Clearance rate lower than expected
• 4 out of 5 properties over $2,000,000 passed in
• A number of no bid auctions which we haven’t seen for some time in Boroondara
• 6 out of 7 properties in Balwyn North between $1,000,000 and $1,500,000 were bought

Price Watch

• 10 Leslie St Hawthorn with Chloe Quinn of Jellis Craig was bought for at $1,310,000, around 20% more than was paid last year
• 11 Carlyle St Hawthorn East with Tim Heavyside of Fletchers is bought for just under $2,000,000 or $2,400 per sq metre in Harcourt precinct
• 15 Constance Hawthorn East with Tina Ceravolo of Hocking Stuart is bought for $2,451,000, or $3100 per sq metre if you bulldoze in Anderson Park precinct

Biggest

• 4 Willandra Canterbury was bought pre auction through Paul Pfeiffer of Hocking Stuart for around $3,000,000

BidderBuzz

15 Constance St, Hawthorn East, Glen Coutinho, Hocking Stuart, Under the Hammer $2,451,000, 5 bidders
“A superb spring day greeted the very large crowd that gathered at Constance Street, Hawthorn East. There was a high level of eagerness and once the auction began it was clear why. As Glen Coutinho initiated proceedings an immediate bid of $1,700,000 was placed. This was obviously below the vendor’s expectations, however Mr Coutinho accepted the bid and the auction began to take shape. With 5 keen participants there was a high level of activity – it did take sometime for the bidding to reach the reserve of $2,400,000. This auction was highly entertaining and the bidding was managed and delivered with enthusiasm and excitement. Mr Coutinho’s honesty from the outset of where the reserve price sat helped to deliver a favourable result for the vendors. With two potential buyers still in the race once the reserve was met, the property was finally bought under the hammer for $2,451,000.” (Dustin Cracknell)

Agent Q & A:

October 23 is Super Saturday – What can we expect?

James Tostevin, Marshall White, Hawthorn: “It has been a strange ‘lead-in’ to spring, given the drawn out election and uncertainty surrounding which political party was going to be in office, two AFL Grand Finals and of course, the school holidays. The weekends leading up to the 23rd have a reasonable offering of properties, but the weekend prior to the Melbourne Cup long weekend will provide a real test of the current strength of the real estate market. I am anticipating a clearance/success rate in the vicinity of 70% across Melbourne, possibly a little above that in the best performed suburbs within the Boroondara, Whitehorse, Stonnington and Bayside areas.”

Steve Burke, Jellis Craig, Hawthorn: “Super Saturday is a great test for our marketplace and I am sure the clearance rates will continue to be strong based on the energy from the buyers coming through the open houses.”

Forward Auction Bookings

Clearance Rates

Results

Scott "Pretty Boy" Patterson (Jellis Craig) fields bids from five bidders before 60 First Ave, Kew, is bought under the hammer for $1,205,000. Check out our video on this auction.

Key Points:

• We covered nine auctions, three bought under the hammer, 2 post auction and 4 passed in
• Jellis Craig had an 80% Clearance Rate today
• Big numbers of $M+ auctions today – 42 monitored
• Bidderman is over 2 on a day when we monitored over 40 $M+ auctions in Boroondara. That’s “strongish.”
• Surprisingly Camberwell only 4 from 10 and some that passed in were good offerings eg 8 Canterbury and 46 Brinsley
• Hawthorn and Hawthorn East 7 from 8 bought.

Agent Comments: The election question

Steve Burke, Jellis Craig, Hawthorn: “A large number of vendors have waited for the election to be over on August 21 and unfortunately as we know there has still been no resolution as yet. Those currently selling now have timed it well because there isn’t the usual volume of stock in the Boroondara market that there usually is this time of year and less competition creates a greater concentration of buyers at the auction and higher selling prices on the day. We saw this last weekend at 56 Manningtree Road Hawthorn where we had 5 bidders, 2 investors and 3 owner-occupiers. We are expecting that the Spring market will start later once things have settled down and the Federal government has been decided and continue right through to Christmas.”

Tom Ryan, Jellis Craig, Hawthorn: “While on our car runs, viewing new stock I have been pleasantly surprised by the amount and quality of homes about to hit the market in Spring and in particular there have been a number of good quality family homes.”

Hamish Tostevin, Marshall White, Hawthorn: “In regard to the election, there has been nothing in last couple of days – no different to the last couple of weeks. Open numbers were the same as previous weeks around 10 to 20 but Melville St had 50. The election will not do that much. Volume  may be back a little already and uncertainty (with government) will not help or have an impact on (the market).”

Chloe Quinn, Jellis Craig, Hawthorn: “Certainly people will raise that concern (that the election has effected the market) but to be honest we had high numbers of people at our open for inspections and auctions last weekend on the day of the election. Because of the election, people are actually in Melbourne. If people want to buy a home then the potential change of political parties isn’t going to effect them getting their house, they’ll make it happen.”

BidderBuzz Auction: 60 First Avenue Kew; Scott Patterson Under Hammer $1,205,000  5 Bidders
A fantastic auction from Auctioneer Scott Patterson and the Jellis Craig crew – Richard Winneke and Chloe Quinn. Mr Patterson commenced with a vendor bid of $980,000 as the crowd of 50 stood silently. Only one bidder piped up before half time. A little rain, a little break and the crowd were fired up. Five bidders in total, the selling price was called at $1,090,000 and the property was bought under the hammer to the enthusiastic buyers at $1,205,000. Great vibe, great auction. 

Clearance Rates & Monitor Table:

Mark "Lama" Dayman (Marshall White) does his best to drum up some interest from the crowd at 51 Leura Grove, Hawthorn East, but with only one bidder is forced to pass the property in at $1,725,000.

70 people turned up to 31 Lambeth Avenue Armadale - did nothing and went home again. A typical Stonnington auction.

Key Points: We covered 7 auctions across Stonnington today. Four had 3 bidders or more and 3 had none. This is a true reflection of Stonnington now: good stuff gets support but there is precious little of it on offer.

Analysis: Our view is that demand is there – and this is supported by our buyer agent enquiry stats covering the $2 million to $6 million price range. The clearance rates and auction action or lack thereof is, in our opinion, a direct reflection of nervous sellers who are not putting quality homes onto the market. The market data in Stonnington is not reflective of an underlying, unsatisfied, stronger-than-indicated $M+ market. We refer to our key auction photo above - plenty of people but no action. If you look at our James Home Rating of the home in question you’ll notice it has a 501/1000 rating, i.e. borderline quality. If it was a goodie it would be attracting bids.

Bidderbuzz Auction: 31 Hawksburn South Yarra – Tom McCarthy – 5 bidders – Bought $1,957,000
Are there signs that the winter hibernation is over? That might well be the case judging by this auction where five bidders fought hammer and tongs to secure this two storey Victorian Terrace with the unusual luxury of rear off-street parking. Auctioneer Tom McCarthy managed the bidders with skill, keeping them all in the game. But alas there was only one winner with the eventual purchase price of $1,957,000.

A personal observation: The only reason we tend to focus on the big agencies is because they have the most homes on offer (ok, plus we like them). However, there is a niche double act making some noise at the moment: Tom McCarthy and his partner Philip Moore both of Biggin and Scott are producing very consistent multiple bidder auctions. I like their style and I think right now they are giving both buyers and sellers a fair shake. Well done. Between $1m and $2m in the Prahran to South Yarra precinct they are one of the hotter games in town, if you want a fair dinkum result.

Agent Comments:

Andrew McCann, Benmac, Armadale : “Not much juicy stock (although) we are seeing more mid-range than high-end. Big homes are affected by footy finals and holidays.  I don’t think the election is a factor.  Any volumes look like being in October rather than the next six weeks.”

Jeremy Fox, RT Edgar, Toorak: “There is a little bit of indecision at the moment because of the election. There are a lot of people out there who are frustrated as they are all ready to buy, but there are not a lot of good, quality properties out there. Hopefully the uncertainty about the election will soon pass and stock levels will change.” Jeremy we 100% agree with you – there’s a first!

Clearance Rates & Monitor Table:

We Only Buy Homes

Rainy day but good result for Iain Carmichael (BenMac) at 12 Albert St, Malvern East. Bought under the hammer, with four bidders and crowd of 60.

Most market watchers were anticipating that once the election was over we would return to a normal, albeit somewhat lean, September.

However if in the aftermath of the election we see more buyers and sellers adopting a “wait and see” approach, it will mean an even quieter early Spring.

A large number of buyers and sellers are conservative and big decisions – like buying or selling a house – tend to be put off if there is an excuse.  So it is probable that with the ongoing election uncertainty they will move into their own form of “caretaker” mode i.e. Let’s wait and see. Meaning: Let’s do nothing.

This coming weekend is an auction biggie and with sellers already partially committed – in that they can choose not to accept an offer but they can’t stop the auction - the big question is what will buyers do?

Nobody could say the Melbourne Spring market has been boring in recent times. In fact 2006 was the last “normal” Spring market. Since then we have had the 2007 Gangbusters Spring Market; the 2008 GFC Spring Market; and the 2009 Recovery Spring Market.

Spring 2010 may well provide us with yet another Spring Market Scenario – perhaps we could call it the “Hung Market”.

A Hung Market could be one that is indecisive in terms of stock level or demand and therefore ultimately inconsistent in terms of price.

What that means for you as a buyer is that you are going to have opportunities and issues.

Some opportunities

• If you are negotiating on a house that you think meets your needs but you’re not desperate to buy, you may be able to work the price better.
• Given the reduced competition at auctions, vendors may be more ready to do a deal before going to auction.
• There may be more off-market sales – and you may be able to negotiate better prices if you know where to look because some sellers may be more keen to sell in a “Hung Market” than in normal Spring markets.

Some issues

• Methods of sale will most likely change and there will be an increase in pre-solds and post-auction negotiations – so you need to have strategies and expertise to deal with this.
• There may not be as many good properties coming onto the market because a number of discretionary vendors might not even go to market. Therefore if you see a good home you will need to consider a couple of different strategies: one to secure the property and one to pay a fair price.

In our opinion bidder numbers (which are already low according to our Demand Indicator Bidderman) will be the key indicator as to the “election effect”. So with the election uncertainty the talk will quickly move from Spring Stock levels (supply) to Bidder numbers (demand).

Who said property is boring? Stay Tuned!

We Only Buy Homes

Yet another pass in 49 Farrell Street, Port Melbourne. Andrew Stuart of Hocking Stuart searching for Bidders.

Over the past two weeks we have reviewed more than 900 properties in Melbourne’s blue Chip suburbs. Of those properties, 35 were flagged for inspection. Properties are excluded using strict criteria which includes the review of attributes like aspect, light, size, number of levels & legal ownership.

Post inspections, 7 of these properties have been selected as being James Investment Grade: In other words, less than 1% of properties that have come onto the market recently. These properties are hard to find and also hard to fault.

Speaking about the market, generally yields are between 2.5% to 4.5% depending on the type and size of the property. In contrast to this time last year, yields were around 3.5% to 5.5%. The fall in yields is due to recent price rises, whilst rents have remained relatively steady over the same period.

In our target suburbs Vacancy Rates are at present less than 2% and in most cases less than 1%. Interestingly however, this is not putting upward pressure on Rents as the market place seem to be maxed out at current levels.

Towards the end of July the market sentiment was definitely cooler with buyers keeping their hands in their pocket. This resulted in a number of properties passing in, especially under the $1,000,000 mark. This trend is could continue as we move towards the uncertainty of the up-coming election.

There is opportunity for buyers in the market place at the moment with bidder numbers down, an overhang in stock resulting from the falling clearance rates and noticeable reductions in price from a number of months ago.

Invest Well

Canterbury: 55 The Ridge: This auction had the hype of Ben-Hur. Auctioneer Richard James stepped out into the limelight ready for action kicking things off with a vendor bid of $3,100,000. Silence. Vendor Bid $3,200,000. Silence. Passed In.

I’ve been in New York and what a difference a fortnight makes. Did I come back to the same place – it’s noticeably quieter! But the market is still turning over big, big numbers of stock – not saying we are going backwards like TOP END South Yarra and Toorak.

Of our nine featured auctions, four were bought under the hammer, two were passed-in and three were bought before. Activity is less frenetic overall than a month or so ago. However homes are still selling in large numbers make no mistake. Look at our analysis below on the list of $M+ scheduled auctions. 75% reported clearance rate with only 2 not reported.

Excuse the boring stats below; it’s to show that almost all auctions are being reported (therefore accurate clearance rates) and there are still large numbers of buyers buying.

Also evident today: Low numbers at opens and at auctions, we only saw 25 people at 6 Kinkora Road in Hawthorn’s Grace Park - not sure if was the colder weather or quality of stock on offering.  Probably a seasonal thing – which is traditional. There is much more to do at the moment than look at properties, for example family school sport, the football, etc.

Speaking to Richard Winneke from Jellis Craig, his company had a clearance rate of about 75% from 40 auctions today. Numbers at opens are definitely down (average around 12 groups this week to around 20 a few weeks ago) and interest from international buyers was also on the low side compared to recent times.

Mal was chatting with Peter Batrouney also of Jellis Craig at the 1199 Burke Road open and Peter stated there is a definite uncertainty out there that was not there a month or so ago. World events, he felt, were leading many buyers to reflect rather than act. He also felt that with 6 auction weeks in a row before Queens Birthday and a huge amount of stock choice, prices were leveling because of that increase in supply.

A stand-out result was 159 Victoria Road Hawthorn (Maurice Di Marzio, Jellis Craig) today selling strongly under the hammer for $3,460,000. Five bidders here and three of these were advocates. While we think the market over $2 million may be wavering, good properties continue to sell (if the vendor’s expectations are in line with market sentiment of course). Two that did not sell on market over $3,000,000 were 26 Thomas Street Kew (Dale Edgcumbe, Hocking Stuart) and 55 The Ridge  (Daniel Bradd, Jellis Craig). 26 Thomas Kew has since been reported as sold after.

Another really solid result for Maurice Di Marzio was 12 Carlyle Road in Hawthorn East - a neatly renovated home yes, but no off-street carparking here and it sold quite strongly for $1,457,000 – 3 bidders.

Seemed to be a bit of Jellis Craig Boroondara wrap today!

Design Smart

Hawthorn East: 159 Victoria Road: Alastair Craig. Bang. 5 bidders. Bang. Bought for $3,460,000. What cooling!!

At 5pm Saturday, of the 15 million dollar auctions we attended today, only three had sold under the hammer.

We do expect a few of these to sell by tomorrow. However, there is no doubt we are in a state of uncertainty with regards to the future million-dollar-plus property market and that, of course, tends to make all of us nervous, which, in turn, means fewer transactions as buyers “shut up shop” a bit.

A contrarian sees opportunity – but let’s not be smart for a while. People are hurting, mainly sellers, and we do feel for the pain it is causing. However, we are buyer representatives and our job is to advise our clients of the true positions – the market has fallen and at present is falling further. The public clearance rates you see are skewed towards lower prices, as less than 4% of transactions in last year’s boom 100,000+ sales were more than $1 million and nowhere near what is actually happening in the upper end of the market.

Yes, properties are selling – some because they are so good that they do have multiple interest, while others are selling because the vendors have to and they have become cognisant with the Spring 2008 price regimes. Many sellers have now become conditioned by newspaper reports, selling agents and market gossip to set their price range at lower levels.

We think the three properties at Illawarra Road, Hawthorn, that were all up for auction today give a true reflection of just how far the more-than-a-million-dollar market has fallen. Last year, you would have expected them to sell under the hammer and average $1.8m to $2.1 million. Today, none sold under the hammer – in fact, there were no bids.

The market has already fallen, as stated in our previous reports, by 10-30% on homes around a million dollars and above and eased downwards between 0-10% on properties around $500,000.

So, it’s not a matter of will prices fall from last year; they actually have fallen and are continuing to fall with this current uncertainty. Where will they stop? Not exactly sure – all we know is history. It shows that, in the early 1990s, the largest and most substantial falls were in the higher-end suburbs; while the average Melbourne home price, which in 1990 was around $120,000, stayed the same until about 1996 before almost doubling by early 2001 and then increasing substantially each year until a short time ago.

For blue-chip suburbs, the variations in prices were far greater. Why? At these levels, the good properties owned by owners with good cash flow were simply not put on the market. Those that were on the market and had to be sold did not have the same demand underpinning them as they previously had, or what the lower-priced properties of the day had, and so prices fell dramatically. This is exactly what is happening today.

Some homes which were $1.2 million last year had interest from buyers who could borrow money and were keen to get in as prices rose sharply. This year, with fewer buyers per property, it is possible to see no buyers for that $1.2 million home. With no multiple buyers until, say, $950,000, a sale may result at under a million dollars if the vendor has to sell.

A few of these low offers get accepted on lower quality properties and, all of a sudden, the fear that was with buyers in a rising market of 2007 is replaced by fear from MANY sellers in a falling market this year. It’s human nature and this is what is happening now.

It’s probably not the time but those suburbs are also the first to recover and then go on and have the biggest increases. Some of the good properties are being “tarred with the bad property feather”. These are the true bargains when you find a vendor that has to sell. But please don’t buy crap.

It’s probably not the time but those suburbs are also the first to recover and then go on and have the biggest increases. This leads us onto:

As much as the talk is about money in 2008, it should, in our opinion, not be all about money. We still think it should be about quality decisions leading to good long-term financial and emotional outcomes.

Look at the graph and, yes, see the big drops in the early 1990s but, after your fear fix is met, look again at the graph and see where prices went from 2000 to 2007; eg Toorak median vs Melbourne median. Quality rises ahead of all others over the longer term.

We can all wait for a better price and, frankly, next year will probably see better buying prices on a number of homes. However, while the upside of waiting for a better price is obvious, the downside is sometimes forgotten: your life is moving on and dream homes don’t come up every day.

If your children are young, they will not be that way forever, and, if you are downsizing, your life may not stand still while the world is firstly in turmoil and then flat for the next few years. And of course that home you really like may not be on the market next year or the year after.

Balance is always a good thing and this is perhaps what is required now and in the future. Perhaps we also need a slight refocus back to the long-term game and the long term fundamentals: happy families, good location, manageable mortgages, good land content, light and a home with a wonderful feel.

If you can see that dream home and are not sure what it is worth or need help finding it in the first place then consider getting a hand from a professional buyer agent to make sure you do actually get it and also to make sure you get it at a price reflective of the market.

We live in interesting times but at least we are still living and at least it’s still interesting.

Buy well.

Sunday morning: The million dollar clearance rate we calculate at 50% and the clearance rate of auctions we attended yesterday is now 40%. We believe the REIV clearance overall 57% is accurate with few results not reported.

So if the clearance rate at auction for million dollar homes is now between 30% at auction and 50% within a few days after auction then what is the clearance rates a few weeks after auction? Is it true that a number of properties are selling after auction or do buyers have forever to make a decisions?

The simple answers are yes and no. No if the home is good, a buyer doesn’t have forever due to expected competition. Yes a buyer has plenty of time if the home is poor due to expected lack of competition.

Some Stats:

September’s Clearance rate now, (ie today), for the auctions we attended is 72%. You can see by looking back over our September Auctions in our market news. Of the 57 auctions we attended – 28 sold on the day; 10 we can confirm have sold after, 6 we have no data on (we assume 50% withdrawn and 50% sold quietly) leaving 18 remaining on the market.

Let’s have a look at why those 18 haven’t sold.

To us, the answer is the Quality of Offering. If you look at the James Home Ratings on all but two unsold properties have a James Q rating score of under 700. In this market if you are just OK (we are not saying bad), overpriced and unsold at auction, then as a seller you maybe in trouble.

So please note – only two September properties we rated at over 700 on the James Q score remain unsold.

Some finishing thoughts.

Point One
Balance is required; having one eye on the present but keep the other eye on the long term future. As buyers, the news is a better now than last year (few runaways and lower prices than late 2007) however good homes are still selling (7 out of 10) at or within a few weeks of auction; more to the point in our opinion within one month after auction the clearance rate is over 90%. But at lower than Spring 2007 prices in many but not all cases.

Point Two
Prices have come off overall but the ones with the biggest drops are in almost all cases the ones you shouldn’t and we wouldn’t recommend you to buy. The biggest drops are generally for rubbish.
Good family homes with good land content (location and size), good light, good floor plan and good feel have even in this turbulent financial world, as of mid October, lost only part of their 2007 gains and none of their 2000- 2006 gains. Yes we work for buyers but these are the facts as we see them.

So prices are better than the agent’s asking price in many circumstances but it is not a giveaway and good homes are still selling like they used to just not like they did in 2006/2007.

Point Three
If you are looking to invest under $1m then even today you will still have competition as the clearance rates are still solid. Anecdotically each of the investment type properties we have bought in the last month (3) between $500,000 and $700,000 have had multiple bidders. History of the 70′s, 80′s and 90′s show that significant drops should not be expected next year at the lower levels, but instead a time of flatness. However please note we are not saying this will definitely happen next year as unlike Japan, certain parts of America and the UK we have a solid economy, increasing skilled migration, increased population, good banking system and a shortage of homes right now.

Of course things change, they just haven’t yet.

Hope this helps and if we can help you buy a good quality home for the long term please contact us at our Brighton or Malvern office.

Auctioneer Julian Augustini of Hodges, one of the good selling agents in real estate, who sold a lovely townhouse at Hastings st Hampton on the weekend after a pass in at auction.

This week has seen a continuation of the market that buyers and sellers have witnessed for the last month or so, one of caution and uncertainty. This weekend saw the continuing trend of around 50% of (million dollar plus) homes selling at auction. The number of bidders is usually one or two (in 2006 and 2007 it was 3 to 5). However our reports show below this week saw a few of those 2007 – 4 and 5 bidder auctions.

For the last month the freefall in prices that we saw earlier this year (a number of million dollar plus properties dropping between 10 and 30% on 2007 expectations) has slowed and we have even seen sporadic signs of optimism from buyers and sellers. Eg a number of strong results by anybody’s standards on top end off market period homes such as the reported sale in Armadale at just under $10 million and a few auctions we attended this week.

Today in this market, if the home is good and the price is right then there is a buyer and a transaction. However if the home is poor and/or the price is too high then the market of today is a far harsher judge on value than it was last year and the property is often not selling (and remaining that way for some months). As we said last week following pass-ins could be a good strategy for buyers.

So many buyers and sellers now understand we are in a completely different market to 2007 and the transactions are more forthcoming when all compare results and prices against similar properties that have sold since March 2008 not Spring 2007.

The financial market commentary seems to be united that we are about to have an interest cut and while we would all see this as a positive our thoughts are that due to a large overhang of unsold properties and buyers that are still, in the main tentative, this Spring could see prices stabilising at these new levels eg below that of last year. For sellers this may not be that good a news but the market is what it is. For buyers who can get over the hurdle of caution and act there are definitely a number of good homes out there priced very differently to 2007.

The question we can’t answer is will they better priced in 2009 from a buyers point of view – our only reply is as it was last year – who knows. Are you a gambler or a homebuyer? If you are a homebuyer and purchasing for the long term and you have seen a home you really like then what happens now or what might happen next year should be of low importance if it’s what you really want.

Good Buying.