Property Prices Without Covid
I think we can all agree that property prices Nationally have well surpassed expectations but let’s consider what prices may have looked like should COVID not had reared its ugly head.
A normalised 2020 would not have seen the implementation of numerous pandemic policy responses such as pushing the cash rate down to 0.1 per cent, the introduction of the HomeBuilder program and stamp duty concessions targeted at entire market segment, not just first home buyers.
According to a KPMG Economic report, most capital cities were due for an upswing in prices in 2020, however record low interest rates and substantial federal government support to the housing market gave the market further booster shots along the way. Let’s also not forget that we need to give a notable mention to ‘FOMO’ and the general shortage of listings. An analysis of dwelling approvals in the big cities shows that in Melbourne and Sydney, there are 25,000 and 20,000 respectively fewer houses and units available than would have been the case in a no-COVID scenario.
The report suggests that house prices in Sydney would have risen 13 per cent to hit $1,119,000 by December 2023. Now they’ll rise 26 per cent to $1,244,000.
Brisbane’s house prices would have risen a modest 9 per cent to $601,000; instead, they’ll rise 20 per cent to $661,000.
Melbourne would have risen 19 per cent to $905,000; instead, they’ll rise 24 per cent to $940,000, whereas Darwin is the only capital where houses prices were modelled to fall, however forecasted instead to see prices rise by $31,000
Whilst we are now well into the throughs of lockdown 5.0, this time navigating the new Delta variant, it is once again fair to say that the Melbourne property market has remained robust and resilient, and we expect another round of heated auctions with shortened campaign times and many properties to once again be sold prior to auctions in August.
A catch up in consumption after the easing of restrictions is a fairly reasonable assumption to make as a sizeable financial and significant material commitment such as housing is unlikely to deter buyers.
With half of Australia currently under lockdown orders, fewer homes have been taken to auction across the combined capital cities. In Melbourne we saw the majority of properties scheduled to be auctioned during lockdown postponed with fewer sales being transacted. There were 1,849 homes taken to auction across the combined capital cities over the past week, down from the 2,153 originally expected earlier in the week.
Auction results soaring above quoted price guides are once again giving agents a bad name as hordes of frustrated buyers being beat at the post week in and week out. Many within the industry are calling for a crackdown as properties continue to sell for hundreds of thousands beyond the price estimates.
Whilst some agents are playing it safe and keeping in line with legislation and market trend, the majority however are deliberately setting low price ranges as a means of not only drumming up interest in the property mostly to unsuspecting buyers that do not fit the profile, but also to make them look good to vendors.
A “quote it low, watch it go’ philosophy which many can no longer ignore and as a result has caused Consumer Affairs Victoria to be inundated with complaints about underquoting, recording 383 inquiries between February and the end of April, a 129 per cent increase on the same period last year and up 34 per cent from 2019.
A competent and skilled real estate agent should know their values based on local market trends, accuracy of comparable sales data and buyer profiles to name a few and all of which are lesson 101 of real estate. A range within ten percent and granted sometimes fifteen percent is deemed as acceptable however when we see recurring sales results that are in excess of thirty to forty percent, alarm bells should start ringing.
Underquoting occurs when a property is advertised at a price that has already been rejected by the seller, is less than the estimated selling price or less than a seller’s asking price as per the advice by Consumer Affairs Victoria. Agents are required by law to prepare a statement of information (SOI) that includes an indicative selling price which can be a single price or a range of up to 10 per cent and show wherever possible three comparable properties to substantiate their range.
The issue here is that most of the comparable properties shown on the SOI are not comparable in nature, for example: the position, orientation, size and layout, are not located within the same suburbs and also at times no comparable properties are provided.
While agents are required by law to publish an indicative selling price, they do not have to disclose the reserve price before auction. The reserve can be higher than the advertised price and there is a push from within the industry to advertise the vendors reserve price before auction.
CoreLogic data showed a national price increase of 6.1% in the three months leading to June 2021, down from a peak of 7% in the three months to May 2021. Melbourne dwelling values increasing by 4.6% in total in the quarter and 1.5% in June. Melbourne dwelling values remain at a record high.
Australian dwelling values rose 13.5% in the 2020-21 financial year, the highest annual growth rate since April 2004. The 28 day rolling change in the CoreLogic Home Value index has seen a slowdown in growth across the combined capitals.
CoreLogic’s Auction Market Review for the June quarter 2021 shows 31,605 homes were taken to auction across the combined capital cities in the three months to June 2021 making it the busiest quarter for auctions since the December 2017 when 32,408 capital city auctions were held.
In comparison the March 2021 quarter saw 19,004 homes taken to auction, while unsurprisingly, the June 2020 quarter saw significantly lower auction activity with just 13,783 capital city homes taken to auction amidst tightened COVID-19 social distancing and movement restrictions, including a temporary ban of on-site auctions and in-person property inspections.
REIV figures saw June 2021 had a reported 3062 auctions with a total of 2602 of these sold representing a clearance rate of 85.0%, which is the highest number of auction sales for any June month. Ten suburbs across Melbourne saw a recorded 100% clearance rate, led by Coburg, Ringwood and Box Hill North.
At a suburb level, Reservoir again had the greatest number of reported auctions for the month at 57 followed by Glen Waverley with a reported 47 auctions.
CoreLogic Figures 1 to 2 show the outcomes in Melbourne for all auctions collected by CoreLogic under different social distancing conditions, as well as the average weekly volume of auctions through each period.
The columns on the far left of each chart shows 5 years’ worth of auction results before the onset of COVID-19, as well as auction results through various periods of restrictions since.
Property Management Update
As we welcome the new financial year, market activity and consumer confidence levels indicated a positive start to the month.
Our Property Management team reported an increase in the volume of leasing enquiries and attendance at rental open home inspections early in the month. The uptick in activity was encouraging, following on from the snap lockdown in Victoria during June. The conversion rates of applications processed to new tenancies secured eluded to promising numbers in July.
Faced with another round of state-wide lockdowns mid-month in July, as always our team pivoted swiftly to ensure a smooth transition for our valued clients as part of our compliant, remote working practices.
Private inspections are fortunately permitted activities at present however, even with the easing of restrictions in late July, we are not permitted under the guidelines to conduct open home inspections or routine inspections at tenanted properties.
The team at Buyer’s Advocate has taken a proactive approach to leasing during this time and continues to work closely with prospective renters and residential rental providers to ensure that we secure quality tenancies that achieve strong rental returns for our vacant properties.
We remain hopeful that restrictions will continue to ease and look forward to a promising month ahead in August. People, property and compliance remains our priority as we continue our focus to achieve solid results during these challenging times.
On a positive note, we welcome our new Head of Property Management to the team this month. Rachel Atkin joins the business in a leadership capacity and brings with her a wealth of knowledge and extensive industry experience to continue building positive business partnerships with our investors. Please feel welcome to reach out to Rachel for all of your property management requirements.
The challenging market conditions continue just as we continue to deliver great results for our clients. Here are a few below:
Home purchase – Ashwood
This purchase showed the value of patience and being prepared to stick to your guns. We were initially offered this large 3 bedroom townhouse in March 2021, however the expectations on price were too high to consider so we waited a further 3 months before it was finally marketed and auctioned, selling within a price range we were willing to pay. A great result for our client and proof that even in a rising market you do not have to meet inflated expectations. It also illustrates the importance of good advice and not being focused on the transaction.
Investment purchase – Surrey Hills
Townhouse in a tree lined street, close to train and village purchased in between lockdowns prior to auction. Circumstances surrounding the sale and purchasers needs collided to provide the perfect platform to realise a sale prior to the scheduled auction. A win for our clients.
Investment purchase – Reservoir
We were chasing a Townhouse on its own Title as part of the overall client brief, with 3 bedrooms 2 bathrooms and a car space in a location close to infrastructure.
It was just after lockdown 4.0 that we were made aware of this property which was scheduled for auction on the 17th July. We commenced our pre-auction due-diligence and ticked some further boxes and made our offer with eight special conditions erased from the contract that would adversely affect our client. Back and forth we went, phone call after phone call, email after email, with the selling agent advocating for our client and finally securing the property, just before the end of the financial year.
Tip Of The Month: Some common yet confusing property finance terms explained:
The cash rate serves as a benchmark from which interest rates for home loans and savings accounts are based. It’s the rate used for unsecured overnight loans between banks or, in other words, the interest rate at which banks borrow or lend money to each other.
Each month, the Reserve Bank of Australia board meets and sets a cash rate target. Lowering the cash rate makes home loans cheaper and is done to encourage borrowing and economic activity. Raising the cash rate increases the cost of borrowing and helps moderate economic growth and is usually done to control inflation.
This ratio reflects the size of the loan in proportion to the value of the property. It’s expressed as a percentage, calculated by dividing the amount borrowed by the value of the property.
A lower loan-to-value ratio (LVR), such as 60 or 70 per cent, will usually make a mortgage less risky for a bank. If the owner defaults and the bank forces a sale there is a lower chance that the property’s value will be less than the loan.
When a property is purchased with a higher LVR, such as above 80 per cent, it’s often a condition of the loan that the borrower buys lenders mortgage insurance.
Lenders mortgage insurance
Commonly abbreviated to LMI, lenders mortgage insurance protects the lender from a financial loss if the borrower defaults on a home loan and there is a shortfall in value after the sale of the property.
LMI is usually a one-off payment made by the borrower at settlement and is required when buying with a loan-to-value ratio above 80 per cent.
For a $750,000 property with an LVR of 85 per cent, borrowers should expect LMI to cost about $8000. If the LVR is 95 per cent, the cost could be about $30,000.
Home loan pre-approval
Home loan pre-approval, also known as conditional approval, provides a borrower with a non-binding indication of the amount of money a specific lender may lend, after reviewing their financial situation. It is subject to several conditions, including a valuation of the property and further verification of the borrower’s financial information.
Pre-approval gives buyers a spending limit, as well as the confidence to pursue properties within a set price bracket and submit offers. It’s typically valid for 90 days and can be extended with updated information.
An offset account is a bank account linked to a home loan that can reduce the interest payable on the loan.
When determining the interest to be charged on the loan, any money in the offset account is deducted from the loan balance. For example, a borrower with a $500,000 loan and $50,000 in their offset account will only pay interest on $450,000. However, no interest is earned on money in an offset account.
If you have any further questions in relation to these terms, please speak to your mortgage broker, financial institution, financial planner or accountant.