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Storm Clouds Brewing – April 2022

May 26, 2022

With Federal and State elections looming and imminent interest rates rises on the horizon, it’s not out of the question that the property market will be victim to some negative flow on effects. In fact, it has begun with a general mood of uncertainty as both the Melbourne and Sydney markets show signs of cooling.
 
Increased costs of living have been felt for some time now and with an inflation rate of 5.1 per cent, the worst in two decades, it seems interest rate rises are around the corner putting an end to the historic low cash rate of 0.1 per cent.
 
The Bureau of Statistics releasing its quarterly Consumer Index (CPI) figures shows a jump of 5.1 per cent from 2.1 per cent quarter with ABS Head of Prices Statistics, Michelle Marquardt saying that it was the largest increase since the introduction of the GST tax back in 2000.

The annual CPI inflation increase to 5.1 per cent in the March quarter can be linked back to the increase in construction costs and fuel prices at 13.7 per cent and 35.1 per cent respectively. Continued shortages of labour and building supplies as well as heightened freight costs have all contributed to prices rises across many sectors.
 
With attention now turning back to the RBA who have previously indicated that it would only take action only once meaningful rises in wages occurred, this approach may now not be a viable economic option moving forward. The RBA will advise of its decision next week where we may to see some movement in the cash rate although may not be as significant of an increase as is being predicted.

Growth Outlook

October 2021 national dwelling values grew to 25 per cent which was the fastest pace for more than 30 years. In March 2022, that rate was down to 18 per cent nationally, in monthly terms growth has slowed to 0.3 per cent in March which is the slowest rate since May 2020.

The tides are changing as many vendors are now feeling a sense of urgency to capture a small window of opportunity that remains before the predicted mid-year rate rises. We saw leading up to Easter an increase in stock levels, however momentum has decreased in the last couple of weeks, and this could be partly due to a large portion of would be vendors now holding off due to waning demand, particularly at the top end market.
 
With three long weekends in April and then an election in May, we are likely to see new listing volumes remain low over the coming months as it seems unlikely that the strength experienced earlier this year will return.
 
It is worth mentioning that sub million dollar properties, especially A grade properties or properties with sought after scarcity factors continue to perform well and command strong competition. We are seeing this particularly within the unit or villa market where options for quality properties remain extremely low but demand high.

Post Election Forecast

Whilst there is cause for concern with varying policy changes that come with an election, in this instance it seems that the property sector has been out on the sidelines with neither party flagging any major housing specific policies. As a result we probably won’t see much of an impact on buyers or seller confidence post the 21st May 2022.
 
Compared to the 2019 election where proposed property policies such as changes to capital gains tax and negative gearing for investment properties were a hot topic, this year this topic has been axed. The only policy that the Morison Government have extended is the Home Guarantee Scheme which offers first home buyers a way into the market with just a 5 per cent deposit will have little to no effect to the property market after the election.

Insights

The housing market seems to have passed its peak. Although buyer activity has moderated, properties are still selling quickly with some suburbs stronger than others. Agents are working with motivated buyers to get properties sold prior to auction wherever they feel that there is enough interest, and the offer is within an acceptable range.

Buyers continue to take advantage of the extra choice available to them since last year since sales volumes increased and the sense of FOMO for many has well and truly passed. It seems that buyers are back into the driver’s seat but this does not extend to all areas and property types!

Data from Realestate.com.au show a drop off in search volumes in every state by varying amounts. The largest monthly declines in search volumes have been experienced in Queensland (down 15%) and New South Wales (down 11%) however this may be due to the recent flood affecting these areas as well as holiday long weekends and school holidays.

Top end properties in inner-city suburbs of Melbourne and Sydney are seeing a slip in values as higher fixed mortgage rates, affordability and increased buyer choice impacts values and it’s highly likely that tighter lending conditions are hitting these markets first.

CoreLogic data reveals that almost half of the 648 houses and units analysed in Melbourne recorded a slip in values in the three months to March, that is 46.8 per cent and declines ranged from -6.4 per cent across houses in the inner-city suburb of Cremorne to a -0.01 per cent fall across houses in Boronia.

Auctions

Auction clearance rates remained high over the March period with a total of 4,685 auctions reported and 3,676 of these sold representing a clearance rate of 78.5 per cent. During the month, the middle Melbourne region recorded the highest number of auctions with 1,766 auctions and 79.5 per cent of them sold.

Ten suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Rowville and Clayton South. At a suburb level, Reservoir again to take out first place for the month with 84 reported auctions followed by Glen Waverley (56) and Craigieburn (54).

Source: CoreLogic

March auction numbers last week were up by 5.3 per cent with 1,606 homes taken to auction across the city compared to the previous week whereby 1,525 auctions were recorded. Trending lower however are clearance rates, preliminary results showing a rate of  69.7 per cent to date whereby this time last year a rate 81.0 per cent was recorded.

Property Management Update

The past few months have seen a few of our properties taking a bit longer than usual to find the perfect renter however, things are starting to pick up on the leasing front with median rents in Melbourne sitting at $468 per week.

Our team are continually working on enhancing and refining our processes, including carrying out health checks on our portfolio.
 
If you are unhappy with the level of service you are receiving from your current Property Manager, have a chat to Rachel or Liz. It may be time for a change. We pride ourselves on creating an unsurpassed property management experience for all clients.
 
If we can assist you in managing your investment or to arrange an assessment of your property contact us (03) 9818 4499.

Property Purchases

The changing market conditions continue to be challenging however we continue to deliver great results for our clients. Here are a few below

Investment Purchase – Pascoe Vale
 
For a first time investor client, this ticks many boxes as an A grade investment property which will see profitable long term results. A front villa on 212m2 of land, its own street access, 3 bedrooms and all under $700,000. Well within our client’s budget. A great acquisition!

Investment Purchase – Ringwood East
 
Our clients wanted an investment property that would give them the option to add value to over time but one that would provide good rental returns as well as capital growth. We secured this exceptional unit which will give them the opportunity to make improvements over time. This large two bedroom unit also sits on a large parcel of land of 377m3 with no body corporate and only one of two in the complex makes this property very appealing.
 

Tip Of The Month:
The Professional Investor

Professional investors understand that to secure the best deals you need to be in the market every day. They want access to the whole market including off market listings which are not made publicly available. They also seek out professionals with extensive market knowledge on the property types and areas that are likely to perform well.
At Buyers Advocate we can provide you with advice on:

  • What is a good investment – types of properties to buy and where
  • When to buy and sell
  • Capital growth
  • Rental yields
  • Current market trends
  • How to maximise your investment e.g., value add strategies