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Waning Momentum – November 2021

Some relief seems to be on the horizon at long last! Over the last couple of weeks we have seen a moderate cooling-off of the market which is being reflected in the clearance rates across Melbourne. This is somewhat a blanket statement however as there remains some outstanding results. Overall, the current climate is somewhat patchy with properties at certain price points, styles and locations doing better than others.
The sub two million dollar properties continue to perform well as to be expected, however momentum is waning for the higher end of the market. A and B grade properties refer to properties which offer good land to asset ratio, are overall in a very good condition, offer a certain level of scarcity factor, provides a well balance and functional floorplan and located in sought after suburbs continue to demand good prices.
There is a noticeable shift in buyer demand with fewer auction registrations and a decreased buyer pool resulting in the level of smashing auction reserve prices shrinking and many agents now getting on the front foot again with follow up phone calls and willingness to be more engaging when it comes to negotiations.
The increase in volume of stock has somewhat attributed to the heightened level of auction pass ins however there is an increase of C grades properties and those which are compromised hit the market and to the untrained buyer this may seem like there are more options available to them when in reality the level of good quality properties remains low. Nationally, the number of total listings remains 19.3% weaker than October 2020.
The current sentiment since we’ve come out of the latest lockdown has been one of fatigue and many buyers have decided to pause their property search until the new year. This in turn is a positive for the motivated buyer who are better placed at securing a property leading up to Christmas at a fair price with less competition.
Properties are also selling quicker than what they would have under a normalised market. The multitude and lengthy restrictions has delayed the Spring market and it is now a race to the finish line with many agents pushing for shortened campaign times and closing off sales at speed should a buyer initiate strong interest in a property leading to many being sold prior to auction.
According to Nicola Powell, Domain’s chief of research and economics, newer listing are coming to the market faster than they are being sold which is great news for buyers, particularly those who have continually missed out.
Time will tell as to how all of this will play out however, we expect that the beginning of 2022 will see another peak as renewed buyer demand coupled with the opening up of our International borders.

The median days on site hit an historic low in both Melbourne (26 days) and regional Victoria (31 days). In Melbourne, the shortest days on site were recorded in the Mornington Peninsula (21 days) and outer eastern suburbs (23 days), while in regional Victoria the shortest days on site were in Geelong (25 days) and Bendigo (27 days).

Rise or Fall?

In our October 2021 newsletter we reported on APRAs implementation of an increase to the serviceability buffer as means of keeping property prices in check which came into effect on the 1st November 2021. Whilst it is still too early to gauge the impact that this will have, the increase in fixed interest rates imposed by the banks over the last few weeks seem to have had more of an impact to date.
Even though the Reserve Bank is leaving its official interest rates on hold for some time as the economy recovers, The stimulus measures are gradually reducing and will stop pushing down the three-year government bond yield, which is linked to fixed home loan rates – as opposed to variable mortgage rates which are more closely linked to the cash rate. The result – banks are now passing those costs on by lifting the fixed term rates

RateCity research director Sally Tindall said many major banks have already started lifting fixed rates over two- to five-year terms and expecting many more to follow suit as the rising cost of funding continue to rise.
The initial impact of these increases will be minimal for borrowers who are already on fixed term loans however once these loans revert back to variable rates at the end of their loan term, the rate is often much higher than the cheapest variable rates that their lender offers.
Despite the Reserve Bank deciding to hold its cash rate at a record low of 0.1 per cent after its November board meeting, there are growing concerns by many experts that this will not remain the case next year.
New analysis by Canstar shows that a 1 percentage rate rise in the average variable interest rate of 3.09 per cent on a $1 million mortgage will see monthly repayments reach $4826 – or an extra $561 a month with Canstar Chief Spokesperson Steve Mickenbecker saying borrowers should prepare for multiple interest rate increases in the next few years. “An increase of 0.25 per cent will add around $140 to the monthly repayment on a $1 million loan, which isn’t a figure that most borrowers will lose sleep over, but rate rises won’t stop there,” Mr Mickenbecker said.
Whilst many are predicting doom and gloom, AMP Capital chief economist Shane Oliver begs to differ and has warned that skyrocketing property prices could rise even further given the government’s plans to aggressively increase the level of immigration into Australia in the coming years to an unprecedented 400,000 a year for five years, meaning the nation would welcome two million migrants in that period. Although immigration only makes up part of the puzzle that influences property prices, any significant increase will again cause a supply shortfall.

Property History

Nigel Stapledon, who pieced together records of property sales in Sydney and Melbourne from newspaper records, gives an interesting snapshot of Australian dwelling prices from the period before federation.
We can see the price of houses didn’t change much throughout Australia’s early history and it wasn’t until the 1950s that prices started to increase relative to other goods. Prices rose gradually at first, and then since the late 1990s began a period of very strong growth.

1950 – 111%
Before the 1950s, land on the fringes of urban cities was both close to CBDs and relatively cheap, which kept a lid on house prices. Once land close to cities became more scarce and along with the high levels of immigration into Australia in the 50s, 60s and 70s, prices started rising at a faster rate.
Prices remained fairly modest until improvements to transportation such as the increase in car availability and the growth of tram and train networks which allowed more accessibility to further suburban fringe regions.
The past year has seen the third strongest episode of annual price growth in Australian history with 1950 leading the way.
The end of wartime price controls aimed at controlling rents and house prices by the Commonwealth after the second world war was abolished in 1950 resulting in surge in property prices although it this represents a one-off ‘catch-up’ for the falls in inflation-adjusted prices throughout the 1940s when houses could only sell for 10% above the value provided by an approved valuer.
1989 – 29%
Housing prices were fairly stable throughout the 1970s and 1980s, however this all changed in the 80s when property prices boomed.
The proceeding decades represented significant deregulation of the finance industry in Australia. Changes such as the removal of limits on the interest rates that could be paid on deposits and charged for loans were made, the floating of the Australian dollar and the introduction of competition from foreign banks significantly modernised the sector.
These changes improved access to credit and helped facilitate the housing price boom at the end of the decade, however this price growth culminated in a financial crisis, where banks lost significant amounts of money with losses primarily due to commercial property sector, rather than residential real estate. Losses on these assets exceeded 50 per cent and brought about a financial crisis and recession, which weighed on house prices in the following years.

2021 – 22%
PropTrack data for the September quarter of 2021 suggests capital city house prices grew by 22% over the past year in inflation-adjusted terms resulting in the third-fastest episode of house price growth in Australia’s history.
The events brought on by the current pandemic has certainly had a significant impact on house price growth and shot up sharply and with exceptionally low borrowing costs, as well as the ability for more people to work from home have driven prices increases in both metro and regional areas but particularly in the regional areas.
Although there has been an increase in property listings which has put some downward pressure on prices. there remains a very high number of buyers in the market on waiting to find their new home and interest rates although on the up remain at record lows with the Reserve Bank again recently reaffirming that is expects that interest rates would not rise for another two years at least.

CoreLogic Insights

The Australian housing values rose another 1.5 per cent in October, a similar result to August and September shows the market is continuing to slowly lose steam. Nationally the monthly growth rate eased to 1.49% in October from 1.51% in the previous month.
In Sydney and Melbourne, the monthly rate of growth has more than halved since the highs seen in March 2021, when they reached a monthly growth rate of 3.7% and 2.4% respectively. 
A combination of worsening housing affordability, rising supply levels, less stimulus, uncertainty, rising of interest rates and tighter credit controls are all factors attributing the slowing growth conditions and with housing continuing to outpace wages by a ration of 12:1, first home buyers are feeling the brunt and progressively becoming a smaller component of the housing market.
The trajectory of interest rates will be play an integral part on how the housing market performances over the medium to longer term.  Financial markets are already pricing in several rate hikes through 2022 and a growing number of economic forecasters are predicting the first rate hikes to be in late 2022 or early 2023.
Higher interest rates have typically been an inflection point for housing markets, with a lift in rates generally corresponding with less growth in housing values or the commencement of a downturn.  With household debt near record highs, borrowers are likely to be more sensitive than normal to the cost of debt. A rise in interest rates is likely to be the cue for the housing market moving into a downswing.

Melbourne dwelling values rose by 1.0 per cent in October with dwelling values increasing by 3.0 per cent in the quarter.


Auction clearance rates have recovered since the easing of restrictions and for the past four weeks the average national combines clearance rate being 74.3%.

There were 5,466 reported auctions in October and with 4,759 of these being sold representing a clearance rate of 87.1 per cent for the month of October 2021. Twenty-one suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Brighton East.

At a suburb level, Glen Waverley had the greatest number of reported auctions for the month at 83 followed by Mount Waverley (73).

Property Management Update

As we look towards the end of a very long 2021, post-lockdown freedoms in Victoria have prompted many people to reconsider what they want their lives to look like – work wise and on the home front. Is it any wonder, with new flexible working arrangements, that we are seeing many renters opting for a regional or interstate lifestyle change. To move closer to family, many choosing to move into shared house living to save money and split rental costs due to loss of income during the pandemic. 

As an Owner, there is never a “right” time to have a renter vacate. With the holiday season rapidly approaching, if you have recently received news that your renter is moving out, you may ask … “Why is the renter giving notice now!”

Your first thought may be that no one will rent a property in November, much less December – the holiday month! There is the prevailing belief that the property cannot possibly rent until the first of the year or possibly even longer. While it is true that it can be slower during the months of November and December and the property may be vacant until January, it is also a fact that properties rent every month, including the month of December. There are many reasons that the property will rent, even in the week before Christmas! 

People may receive job transfers, receive a Notice from their Residential Rental Provider because they are going to sell, perhaps they need a larger home if they are having another child. Maybe their lease is up, or they may want to move to another neighbourhood or interstate, even a preference for another school district. The many reasons why renters move is the same list of reasons to move we encounter through the entire year.

People rent properties as dictated by their circumstances or needs and that means it does not necessarily fall on the first of the month or avoid the holiday season. This has been one of the biggest misconceptions about rentals since the beginning of time. When their job transfer comes through, it can be any date. The same rings true for all of the different reasons that motivate a renter to give Notice. There are people who plan a tidy transition on the first of the month or in the summer, but if you take a poll from Property Managers around the State, you will find that properties rent all through the month and for many different reasons. There are just not the same numbers of people who move during the holidays as the rest of the year, so it requires a different perspective.

Take the positive approach 

Thinking negatively does not help the situation – you need a positive approach for any pending Notice to Vacate, but especially during the holiday season. Take the time to look at the property objectively to reduce your losses and rent the property as quickly as possible. 

  • What incentives can you offer during the holidays to entice applicants to choose your property? Perhaps you can offer a free rent period to offset holiday expenditures.
  • What maintenance will improve the property while on the rental market? Perhaps a garden clean up or gutter clean. A fresh coat of paint or new blinds can do wonders and may be less expensive when the property is vacant as trades can get in and out quickly.
  • What tax benefit will you gain for the current year? If there is any loss of income or maintenance expense, think of it as an additional tax advantage.
  • Will this improve the tenancy? There are times when a Notice to Vacate can lead to better quality renters.

If you do receive a Notice to Vacate during the holiday season and you are a client of Buyer’s Advocate, do not despair. The team at Buyer’s Advocate will work as diligently as we do during any other month of the year to rent the property as quickly as possible.

  • Unless there are extenuating circumstances, we will immediately put the property on the market for rent.
  • We will employ all available marketing means to rent your property.
  • We will use any incentives authorised by you to rent the property.
  • If we do encounter any difficulties with renting the property, we will keep you advised. 
  • We will always seek qualified renters even though we are trying to eliminate or reduce any vacancy period.

Whilst we recognise that the holiday season can present challenges, as professional Property Managers, we work to overcome them and we believe in taking a positive and proactive approach.

Recent Purchases

The challenging market conditions continue just as we continue to deliver great results for our clients. Here are a few below:

Investment purchase – Surrey Hills 

With a very motivated vendor and heavy competition from other buying parties, we had to get the other competition “on the hop”, to ensure that not only was our offer tantalising enough for the vendor, to take it off the market prior, but to ensure that there was minimal competition if any from others.  After putting our value range on the property in line with comparable sales data, we managed to secure this investment property for out investor client, at the bottom end of our range without relying of the statement of information or vendors reserve price.

Investment purchase – Reservoir
Another one secured prior to auction. Asking the right questions and forming them well, gets the right information necessary to formulate an offer prior to Auction that’s not only appealing to a vendor but can also detract the competition. Relationships with selling agents are also a big component of this as well.

Home purchase – Glenroy
Knowing the market and what’s a reasonable price to pay in a given street, along with being able to jump quickly, we set off on this opportunity as it was a golden one, that we couldn’t let go of. Negotiation commenced and we had competition from another buyer, acting alone. Securing this one for the price we secured it for, came down to how the selling agent was treated over the phone by the competing party. Effectively “having the door slammed shut on them” and the selling agent with the Vendors permission, dealing with BA exclusively. We attained the right result.

Tip Of The Month: Off Marker or Pre Market?

With the property market starting to wane, more properties will be offered as ‘off market’ opportunities.
However in order to avoid possibly being ripped off (blunt but true), knowing the difference between an ‘off market’ and a ‘pre market’ sale takes not only knowledge and strong agent relationships but also experience.
There are however some typical warning signs that a property being offered was not legitimately off-market.
These include a blanket email sent to several other recipients, if there is no price given or if the sales agent is unclear on the vendor’s motivation to sell.
If the communication indicates that the vendor would look at offers prior but if they do not achieve their price they will be going public on a certain date, then walk away.
This a clear sign that the vendor is likely to have a public campaign unless they can achieve an above market price. This is an upcoming listing, not a true off-market.
Another obvious sign is if in your communication with the selling agent he/she sends you marketing pictures and brochures for the property. A vendor who is wanting to sell off-market would not go to the effort and cost of having professional photos taken.
Buying off-market can be a great way to buy but it’s important to do your homework and make certain that you ask a number of questions before making an offer.
It is also important that in your negotiation with the selling agent, you are as specific as possible with your criteria or even better engage the services of a buyer’s advocate, who will not only have great relationships with agents to gain access to off-market properties but may also be approached directly by a seller to find a buyer in this manner.
REBAA recommends the following questions you should ask your selling agent to determine whether or not the property is off-market:
Some simple questions to ask the agent  to determine whether or not the property is off-market:

  1. Does the sales agent have the authority to sell the property?
    Often an off-market listing can be a marketing ploy to demonstrate to a potential vendor that they have buyers at a price point they would be happy to consider. If the sales agent does not have the authority, they are not in a position to sell the property. If the agent does have the listing, ensure that you are only dealing with the listing agent who has direct access to the vendor.
  2. Does the sales agent have the contract of sale prepared?
    Without this the property cannot be sold.
  3. Has this been sent to their database or only a select few?
    Or even better if it has only been sent to yourself? The fewer people the less potential competition. 
  4. What are the reasons for the sale?
    There must be some type of motivation to sell in this way without a public campaign. Without a sufficient reason they may just be fishing for early offers or determining potential competition before listing.
  5. Is a price point being given?
    If there is none, then how do you know whether they will sell and at what price.

How to prep for an auction

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