Cash is Why

The loneliness of a long telegraphed pass in. 0 opening bidder, 0 closing Bidder, 0 bidder and 0 interest.  Welcome to a third of sellers' Saturday's

The loneliness of a long telegraphed pass in. 0 opening bidder, 0 closing bidder, 0 crowd and 0 bidders and 0 interest. Welcome to around half of sellers’ Saturdays these days.

6thMay2018

Breakup 55518

It’s 6.00 pm on Saturday, the first of 3 weeks in our May 100 Auction test.

It played out to an expected script, with a near cold 63% clearance rate on family homes over $2 million and the James is a consistently chilly 1.3 (bidders per auction), on what are relatively low stock levels for a “normal” May. Look at the Ducks and Lone Rangers – if you bid at 60% of the auctions today, you were the only one.

The market is consistent with what we have seen since spring of last year and is continuing to fall in price on all, but the very best.

Why?

Cash. Cash is why!

The wider market is demand and , it does operate to a science – not a mystery.

True, each and every home to buy and sell well, has an element of art or the unknown; BUT overall what is going on in this market is a science.

The science of demand and supply.

However demand is not people alone – yes, people create and bring the demand, but it is what they bring with them, that is the true influencer of the market.

If demand and supply were just people alone, then Africa would have a stronger real estate market than Australia.

If we had been encouraging poorer migrants, rather than skilled wealthy ones; then the would not have exploded, it would have been the low-end investor or regional market that went ahead due to an increase in renters.

The thing that determines where the market is going – eg up, down or flat, is population AND the moula, the spundula, the real stuff, that population has – yep, show me the money!!!

It’s population AND the amount of money that determines overall market price movements.

Money comes in two forms – the folding stuff and c _ _ d_ t.

Understanding this shows you why the overall market is falling and yet two-faced when it comes to A-graders v C-graders.

Let’s look at money (cash and credit) and the market.

The only thing opening up in banks at the moment is their ethical standards and board vacancies. Everything else is tightening up, under clear directives from the treasurer and the Reserve bank, via APRA.

It is harder for most of us to get a loan now, than two years ago.

That tightening has taken money (credit) out of the market, thus reducing what buyers can offer to sellers in exchange for their home AND when you combine this with the significant drop in real cash out of China, the market trajectory has begun to tip.

Overall the market is smaller because it’s less liquid and prices then fall.

Ok here's the rule book, blow that dust off, so chapter 1 yeah sell, where the index...mmm now what to do when there are no bidders. Oh yeah, here it is...... go home.

Ok, here’s the rule book, blow that dust off, so chapter 1 yeah sell, where is the index…mmm, now what to do when there are no bidders. Oh yeah, here it is…… go home.

Prices and Stock Level relationship

After a while sellers see prices falling.

Sellers fall into two camps (have to sell and may want to sell) and eventually as prices fall even further, only those who have to sell come to market – and so the spiral of falling prices and falling stock levels continue downwards until there is a seismic shift in something.

This is the mirror of the upwards spiral that we have been in since 2012.  The seismic shift was in May of last year when the combination of bank tightening and falling Chinese cash turned the market.

WOW – that almost makes sense Mal, and is very unlike you – so tell me how come the market is still rocking for A-graders?

Same rule – Money – there is plenty of cash – credit is not needed as much.

The market is not one big monolithic thing – it is not Uluru – it is the Great Barrier Reef:

made up of many little organisms (buyers and sellers) and one segment of the market is A-graders at the Top End and that segment is still awash with cash.

Why?

The “Chinese Dividend” from 2009 to 2017. The Upper-End A-grade market money supply has a higher proportion of cash and many locals (buyers and builders) are sitting on wads of it, having sold to overseas buyers recently. Their money doesn’t need as much credit, their money is largely cash and therefore the laws of demand of supply deem that:

Some A-graders (many are now local buyers) are still rising, as the cash is still there – B and C-graders are falling as the cash is not.

I’m confused Mal and Gina, some good homes are not selling at the Top-End.

Yep, the overpriced ones and that is also the science of demand and supply. We do have fewer buyers at the Top End – the OS Chinese people haven’t all stopped buying, but a lot have AND an increased number of locals are now sitting on the fence, waiting till they feel more comfort.

Ok, Mal I’m still confused about the lower $ segments of the market, eg $1m A-grade homes need bank credit but they are still going well.

That’s a different phenomenon – and best explained by the fact the current market is only experiencing a money shortage, not a population shortage or a stock increase.

Melbourne’s underlying market structure of massive population growth (demand) and reducing house blocks (supply) is still as solid as it can be – not everybody likes it – but Melbourne’s underlying market is as robust as a market can be.

We are simply in a market vagary caused by a change in the money supply (from Banks and China).

And as Ricky Ponting says in his ad, if I was a betting man and I am, then this market vagary will not last that long.

So we’ve digressed.

The reason the $1m market is still rocking in most areas for good homes, even though the buyers need credit, is sheer weight of numbers. Bidders have dropped from 8 to 4 – but 4 is still a lot.

AND most of the sellers are have to sell rather than may want to sell – so they meet the market more readily.

The $6m-plus market (arbitrary number) is still hot on the right properties because not all the market circumstances have changed from two years ago. There is still plenty of cash, but fewer buyers and so there has been a flight to quality – A-Graders.

The $1m to $2m market has eased a tad because most buyers have a credit component in their money and the banks have tightened, but we are not noticing it a lot on price, due to the sheer weight of numbers (population) versus supply (homes on land).

Where the biggest changes have occurred is the $3m – $5m market – it’s that unsweet spot in between basic homes and luxury mansions where buying numbers have diminished as bidders are unable to find the money (cash and credit) and they have moved out of this market. Some to the $2m market – pressuring that $ segment and weakening this one.

Things will turn as the money flow improves again and it will improve the quickest and strongest in this $3m to $5m segment – that’s no arty prediction, that’s a scientific fact of demand and supply.

Call Gina

Volcanoes

 77 Brunel Street Malvern East. John Bongiorno. under the hammer $2,720,000 with 5 bidders


77 Brunel Street . John Bongiorno. under the hammer $2,720,000 with 5 bidders.

East, 77 Brunel Street (John Bongiorno, ) $2,720,000, 5 bidders

Malvern East, 31 John Street (Daniel Wheeler, Marshall White) $2,415,000, 4 bidders

Albert Park, 49 Page Street (Warwick Gardiner, Greg Hocking) $2,860,000, 4 bidders

Read all 27 auction reports here

BigDucks

, 23 Rochester Road, passed in $4,900,000, 0 bidders

, 90A Glyndon Road, passed in $3,000,000, 0 bidders

Brighton, 14 Collington Avenue, passed in $3,100,000, 0 bidders

Read all 27 auction reports here

RoundtheGrounds

InnerEast

Hawthorn East, 7 Temple, Andrew Gibbons, Under the Hammer $2,227,500, 2 bidders

7 Temple East, Andrew Gibbons, Under the Hammer $2,227,500, 2 bidders.

Hawthorn, 20 Riversdale Court (James Tostevin, Marshall White) under the hammer, $6,250,000, 3 bidders

Deepdene, 22 Deepdene Road (Scott Patterson, Kay & Burton) under the hammer, $4,831,000, 3 bidders

Hawthorn East, 7 Temple Street (Andrew Gibbons, Marshall White) under the hammer, $2,227,500, 2 bidders

Read all 27 auction reports here

Stonnington

31 John Street Malvern East. Daniel Wheeler, under the hammer $2,415,000. 4 Bidders

31 John Street, Malvern East. Daniel Wheeler, under the hammer $2,415,000. 4 Bidders.

Armadale, 507 Orrong Road (John Bongiorno, Marshall White) under the hammer, $6,600,000, 2 bidders

Malvern, 6 McKinley Avenue (Fabian Sanelli, Upside) bought after auction, undisclosed, 2 bidders

Prahran, 31 Greville Street (Michael Tynan, Biggin & Scott) bought before auction, undisclosed

Read all 27 auction reports here

Bayside

75 Ormond Esplanade Elwood, bought after auction, Torsten Kasper undisclosed 1 bidder

75 Ormond Esplanade, , bought after auction, Torsten Kasper undisclosed, 1 bidder.

Brighton, 11 Wolseley Grove (Steven Smith, Marshall White) under the hammer, $4,210,000, 2 bidders

Brighton, 54 Lynch Crescent ( Halli Moore, Buxton) bought after auction, undisclosed, 1 bidder

Elwood, 75 Ormond Esplanade (Torsten Kasper, Chisholm & Gamon) bought after auction, undisclosed, 1 bidder

 Read all 27 auction reports here

Call Gina

Bought* – Indicates has been bought. We are a buyer rating company and a buyer advocate company, and we use the word bought instead of sold to give the website a buyer flavour. We do not buy all the properties listed on this website, therefore we often rely on an advertised price or the selling agent to indicate the bought price and occasionally the result may be inaccurate.

Subscribe to our Market News Newsletter


Tags: , , , , , , , , , , , , , , , , , ,

Be with James

Would you like to talk to us about finding or negotiating on your next home?
We buy 100 homes for our clients every year.
We buy Inner East and Bayside over $2m.
View more MasterClass Articles

Inside James Market News