Buyer’s Market Returns … a time to consider your next move
After a sustained period of solid growth in the Melbourne residential property pricest, we are now seeing a significant switch from what was a seller’s market to a buyer’s market.
Auction clearance rates have fallen to circa 59% from a high of 82%, the number of bidders at auction has reduced to an average of 2 from a high of 5 and many auctions are now being passed in on “vendor bids”, which often means that a bid from the crowd was not received on the day.
The change in the market has been brought about by three principal factors:
1. The major banks have tightened their lending practices…lower LVR’s and stricter lending criteria.
2. Overseas buyers now operate under tighter regulation which makes it more difficult and more expensive for them to hold property in Australia. This has significantly reduced market competition.
3. Adverse media commentary surrounding household debt in Australia and the prospect of interest rate rises at some time in the future.
It is in these changing times that people tend to “close up shop” by postponing the purchase of their new home and/or investment property. Whilst this is a perfectly understandable response, it can also prove to be a time of lost opportunity.
We are now seeing some real value in the real estate market. There are many motivated sellers and fewer buyers. Not all properties are being advertised on the open market, many are now being offered to us “off-market” and at very realistic prices that reflect the changed market conditions.
The key is to make sure you buy at today’s value which is not always its asking price. In the words of the great Warren Buffett: “Price is what you pay, value is what you get”. The message is to get value in the price you pay.
The following graph shows the trend in Melbourne median house prices in the period 1966 to 2016. It demonstrates clearly the resilience of property to withstand the most severe of financial downturns.
In the period 1990 to 1992, interest rates in Australia were hovering around 17.5% in the “recession we had to have” according to our then Federal Treasurer, Paul Keating. A fall in house prices was followed soon after by a long, sustained period of exponential growth over a period of some 16 years, save for some minor short term dips along the way.
In 2008, world financial markets were thrown into turmoil with what became known as the Global Financial Crisis. Within 18 months, following a short term drop in overall property prices, the market recovered to register yet another period of solid growth.
It is impossible to predict how long the current dip in property prices will last but history tells us clearly that those who purchase in times of subdued property market conditions stand to make exceptional gains in the medium to long term.
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