As buyers exercise more leverage in Melbourne’s residential real estate market, some prospective purchasers are missing out on good buy-in opportunities by failing to recognise the highly discretionary motivations of vendors.
Many sellers are prepared to “wait out” the market until they can achieve a reasonable price.
Melbourne real estate has rocketed ahead for much of 2021. But as more homes are listed for sale, signs of a less frantic pace of growth are starting to emerge in some city areas.
Figures from the Domain Group show a 32.7 per cent rise in the number of new home listings in October compared to September. Meanwhile, auction clearance rates have eased back to the 70 per cent range.
Private inspections reopened in Melbourne on September 18. This provided a fillip for many prospective vendors, who had been sitting on the sidelines, to list units and houses.
The big question for buyers is whether or not the current increase in properties available for sale will be a short-lived thing.
“Buyers need to realise that they are in a market, which all of a sudden has had an influx of property, for a specific reason,” says Nelson Alexander Director Arch Staver.
“That reason is that people who were sitting on the fence considering whether to sell off the back of solid results started to prepare their houses for sale or waited for their tenants to move out. Subsequently, a large number of properties have hit the market at the same time
“At the moment, there is a small window for buyers. But I do think that will change: vendors list their properties when they are confident there is strength in the market.
“The clearance rates have dropped from a record high of 90 per cent into the 70 per cent region, and that trend is being watched very closely by vendors. So going forward, I don’t believe there will be as many motivated sellers as there are at the moment.
“Buyers shouldn’t be waiting for a tsunami of property listings. They are in the right place at the right time at the moment. There is a lot of listing activity right now, but that activity is likely to be less prevalent next year.”
According to Domain figures, Melbourne house prices have risen sharply this year, up 16.8 per cent in the 12 months to September. Home values rose another 1 per cent in October, CoreLogic found.
Melbourne’s monthly auction clearance rate for October was a healthy 75.3 per cent, its strongest month for 2021. Market analysts say an auction clearance rate of 70 per cent correlates with 10 per cent annual price growth.
There’s little doubt that buyers are exercising more control in the market than they were in the July-September period. But with thousands of property owners having a large amount of equity in their properties, the supply-demand balance can quickly change, especially if vendors decide to hold back from listing.
Mr Staver says a significant group of buyers are currently sitting back because market conditions have spun around in their favour with the increase in supply.
“It is almost as if some buyers are engaging in ‘revenge’ buying,” Mr Staver notes.
“Having missed out on properties where there were multiple bidders, now with the tables turned, they are losing sight of the good value buying opportunities and are really trying to cruel down vendors to the lowest possible price.”
Mr Staver stresses it’s questionable whether the present high level of supply will remain in place for long.
It is critical for buyers to be aware that in the inner-city and the north and east of Melbourne, property can stay very tightly held for long periods.
“The toughest time for selling real estate that I can recall was in the early 1990s,” Mr Staver says. “We had a boom in 1988-89 followed by a recession. What happened in our areas, including the inner-city and the inner north, was that people just did not sell.
“Prices were sustained, but there was just less and less property on the market.
“I believe that suburbs like Fitzroy, Northcote and Brunswick may behave in exactly the same way once again. And that is: if the market is not chugging along, then would-be sellers aren’t going to be selling.”
According to agents, the average number of active bidders at auction across Victoria has dropped from four people in September to three in the first half of November, indicating competition is healthy but less frenetic.
Buyers, though, need to recognise that there is a difference between a market starting to level out and one that’s declining. There is no indication at all that Melbourne’s market is in decline.