Two years ago, almost to the day, the word COVID-19 was doing the media rounds with many of us not giving it much thought and not expecting changes we would have to make to our everyday lives nor the sacrifices many of us would have to make. The world as we knew it was to change and the way in which we lived, worked and conducted business would change drastically.
The word ‘unprecedented’ became part of our everyday vocabulary and people were soon to become stranded wherever they were around the world unable to make it home as borders worldwide began to close. What seemed like a surreal moment in time soon became reality and two years on we are still navigating, albeit with a better roadmap COVID-19.
The pandemic was the catalyst for the remarkable shift we saw in the Australian housing market and has had a distinct impact on the mindset of buyers and renters alike. During this period, we have seen some significant impacts on Australian housing market from the rising of dwelling values to a phenomenal rate of 25 per cent fueled by record low interest rates, government grant handouts, drastic reduction in the supply of housing and high household savings.
First homebuyer activity spiked as many took advantage of the short lived downturn in the market from April 2020 to September 2020 while also taking advantage of government incentives and low interest rates. The rate of approvals for first home buyers peaked in January 2021, although has since been on the decline as housing values outpaces incomes.
A mass exodus of Melbournite’s to the regions and interstate took place as longer and more severe restrictions were imposed in Victoria. We saw an increase in vacancy rates resulting in a decrease in rents across the board, a race to the bottom for the CBD apartment market as migration and overseas students were locked out. This resulted in positioning Melbourne as the cheapest capital city to rent. We are happy to report however that the tables seem to be changing since the reopening of the borders and with people now moving back from the regions.
We have seen a more significant increase in values of detached homes compared to units primarily due to the need for more space as more time spent at home through the pandemic, resulting in a record price gap between house and unit values of approx. 29.8 per cent.
The introduction of the HomeBuilder scheme also assisted with this gap as new home sales increased significantly with HIA reporting new home sales in the December 2020 quarter were almost 100 per cent higher than in December 2019.
The market upswing has delivered some extraordinary results and value gains, providing significant wealth to property owners but on the flip side has made entry into the property market for many much harder to attain.
The RBA has announced no changes to the cash rate once again as the primary focus remains on inflation along with wages growth. The war in Ukraine has also undoubtedly added another layer of complexity with rising energy cost and global supply chain disruptions.
We reported last month on the increased level of stock to the market and continue to see this trending higher. In Melbourne advertised stock levels are now above average, tracking 5.5% higher than a year ago and 4.7% above the previous five-year average however we may notice a slowdown again in stock levels in the coming weeks as we near the Easter and school holidays.
Strong buying momentum also continues among buyers as more options become available resulting in properties selling at a more rapid rate. In February the number of days a property was listed on realestatec.om.au before selling fell to a median of 35 days which is down 10 days compared to a year ago.
With buyer confidence remaining relatively high, good quality properties and in sought after areas, particularly if they fall within a desired school zone, offer a prime floorplan or have scarcity factors continue to outperform the market. It is also worth noting that the increase of pass ins at auctions are not a clear indication that the market downturn is significant as these properties are often being sold within the week not far off their quoted ranges if not more, depending on how effective the agent’s negotiation strategy are with the buyers.
Revised Banking Regulations
There may be some changes on the way as to how loans with a high loan-to-valuation (LVR) are assessed. APRA is proposing to raise “risk weights” which will in return most likely make it harder and more expensive to take out a mortgage moving forward and tabled to take effect as of 1st January 2023.
Recommendations by APRA to raise the risk weights, otherwise known as “complicating factors” bank use in determining how risky the banks’ assets (your mortgage) are. The riskier the asset, the higher the risk weight will be and the more equity a bank must have as a buffer.
The new risk weights will increase for owner occupiers with an 80-100% LVR, investors and interest only loans and will attract higher risk weighs even if the borrower has lender’s mortgage insurance.
APRA data shows that borrowers with a higher LVR at the time of loan being taken out are more likely to go into arrears and banks are more likely to lose money. This change will mean that banks will need to apply a higher buffer of equity for high LVR loans resulting in the banks passing on this additional cost onto borrowers.
To date the banks have only charged around 7 basis points more for loans that are over 80% LVR, however the premium has widened to almost 20 basis points recently prompting these changes.
The impeding changes to policy will once again have a more substantial impact on first home buyers where a mortgage of 80% LVR or more are commonplace as saving for a deposit is the biggest constrain towards home ownership reviving the importance of having a healthy deposit.
The Australian housing values continues to show only moderate growth with February recording the lowest monthly growth reading since October 2020.
According to CoreLogic’s Director of Research, Tim Lawless, every state is now recording a slowing of the market with Sydney and Melbourne again leading charge with the sharpest slowdowns since September 2020. Regional Australia continues to see a substantially higher rate of growth over capital cities however similarly showing signs of easing as these markets are also now subject to housing affordability constraints.
Global uncertainty, fixed term interest rate rises and changing monetary policy settings will continue to also play its part with consumer confidence as we head into the winter market.
Melbourne property prices recorded zero rate of growth over February 2022 compared to a 0.2% rise in January 2022 and as we continue to see an increase in stock levels, March property price growth could again look sluggish compared to previous months.
Auction clearance rates remained high over the February period. In total 4,089 auctions were reported with 3,207 of these sold representing a clearance rate of 78.4 per cent. During the month, the middle Melbourne region recorded the highest number of auctions with 1,556 auctions and 79.8 per cent of them sold.
Eight suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Boronia, and Warrnambool. At a suburb level, Reservoir continues to take out first place for the month with 65 reported auctions followed by Glen Waverley (58) and Craigieburn (55).
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
During such a challenging time for our fellow states, our thoughts are with those affected by severe weather and flooding in Queensland and New South Wales.
Victoria’s vacancy rate fell to 3.9 per cent in February 2022.
The vacancy rate across metropolitan Melbourne went down to 5.1 per cent over the month. Middle Melbourne saw another decrease to 7.6 per cent and inner Melbourne also went down to 6.1 per cent. Outer Melbourne’s vacancy rate fell to 1.9 per cent from previous month.
The median rent for houses in metropolitan Melbourne fell slightly to $495 per week while units saw an increase to $425 per week. In regional Victoria, the median rent for houses and units rose to $417.50 and $350 per week respectively over the month.
Median House rents
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Median Unit rents
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Our Property Management team prides themselves on consistently finding areas to grow so that we may effectively manage your property and bring you the best possible results. It is as important to us as it is to you that your property succeeds in this rental market.
If you or somebody you know has a rental property that has been on the market for some time, please feel free to contact Rachel or Liz on 03 9818 4499 for a confidential chat on how easy it is to move to Buyers Advocate Property Management.
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 – Chadstone
Our interstate clients engaged us to find them their 3rd investment property in Melbourne with specific criteria to be met. This sought after townhouse was a standout as it met all of their objectives and securing a 3 bedroom, 2 bathroom and 2 garage home on its own title with great street appeal via auction at 3am by our dedicated advocate while overseas made this purchase all the more special.
Home Purchase – Heathmont
We secured this ‘off market’ property by way of private negotiations for our wonderful clients looking to build their forever home. The brief was very specific as we had to meet certain specifications to ensure that they could utilise the land accordingly and through strong agent relationships purchased this property at land value and well below our client’s budget.
Home Purchase – Camberwell
Our clients engaged us to find them a family home that provided them with a spacious and well balanced floorplan which they could move into without having to do any renovations or improvements. This property ticked many boxes and by being persistent and patient we monitored the market closely and opted to pursue this property at auction rather than privately which resulted in saving our clients over $100,000.
Tip Of The Month:
How to determine the value of a property?
Every buyer has a different perspective on value as does every vendor and in a rising market ascertaining value can be challenging as realistically a property is only worth what someone is prepared to pay for it, hence the term ‘market value’.
Although there are a few different ways of working out a home’s values, some are more formal than others.
Auto Generated Reports
These estimations are usually auto generated and not an accurate source when it comes to obtaining the correct value of a particular property. They are usually based on algorithms that are auto generated and rely on comparable sales of similar properties; for example, units in a particular suburb but what this doesn’t take into account are the fundamental criteria such as property size, orientation, number of units within the complex, proximity to transport, surrounding amenities, floorplan etc. In fact, these auto valuations classify units and apartments as the same hence nine times out of ten give a valuation that is inaccurate and not in line with the market.
Many mortgage brokers, financial institutions, and online property platforms such as Domain and Realestate.com provide these free of charge reports as a means of assessing the value of a property before buying however these should not be relied upon as being completely accurate.
Appraisals are usually conducted by real estate agents and provide a more accurate guide when it comes to the value of a property. We are not referring to the statement of information, but rather a valuation that uses the local agent’s expertise as they are familiar with the area and will take into consideration recent sales of similar properties and market conditions.
Appraisals are free of charge provided to vendors who are wanting a price range an agent believes the home is worth and will most likely sell for.
At Buyers Advocate, we provide our clients with a detailed property report which provides them with an unbiased and accurate representation of value. Multiple factors such as market conditions and recent comparable sales are taken into account but we also take into consideration the following:
- Location and property type
- Finishes and condition
- Orientation and floorplan
- Streetscape and appeal
- Capital growth and rental yields
- Surrounding planning approvals
Property valuations conducted by registered valuers are again different to auto valuations and appraisals as they are a legally binding report which exams all aspects of a property in detail beyond its size and location.
They are used by lenders to give a definitive value needed prior to approving a loan or refinancing and give a detailed analysis of a property and typically a valuer will look at things such as:
- Size of the property
- Number and type of rooms
- Fixtures and fittings
- Areas for improvement
- Building structure and condition (including faults)
- Standard of presentation and fit-out
- Ease of access, such as good vehicle access and a garage
- Planning and restrictions and local council zoning
- Recent sales in the area and other market conditions