oc | Monday 24th February

People are hurting, mainly sellers, and we do feel for the pain it is causing

raw_concerned main picAt 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 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, , 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 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 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 or Malvern office.

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