Concerns Over Our Economic Future But No Crash

By Peter Sarmas on 27 Nov 2017
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Melbourne Auction Results 27th of November 2017

69%
Clearance
Rate

1305
Reported
Auctions

Sold at Auction: 732    
Passed in: 409  

 

Sold Before: 163    
Sold After: 1    
Private Sales 326  

 

 

Source:REIV

 

Melbourne Market Wrap March 27th November, 2017

There is a tonne of information to talk about this week but I know you won’t have the time to read it so I’ll try and keep it short and sweet!

This week as well as discussing how the Melbourne and Sydney property markets are faring I will also briefly chat about what I gleaned from my lunch with Bill Evans. For those of you wondering who Bill Evan is, he is Westpac’s Chief Economist since 1991 and has quietly made solid predictions on the Australian economy and its property market so worth a read!

The REIV reported 1305 properties auctioned this weekend versus 1500 last week and 1475 for the same time last year. The clearance rate was 69% which is in-line with last week’s result of 70% and slightly less than the 76% recorded last year for the same time.

Melbourne’s auction clearance rates are starting to see some consistent softening the past month, however this has been on the back of a record number of listings being auctioned the past few weeks.

The previous week marked the last realistic opportunity for vendors to sell their homes before Christmas. Agents are booking mid-week and twilight auctions trying to compress as many properties on the market before Christmas but this will most likely lead to disaster for vendors.

The trend for higher than usual pass-in auctions in the East continues with Doncaster, Bulleen and Balwyn showing considerable downturn.

For those of you thinking we are witnessing a market collapse think again. In the past month we have tried to buy no less than 4 properties for our clients of which we have only been succesful in buying 1. On the flip side we have been succesful in selling four proeprties so looking at these results it appears the market still favours realistically priced vendors.

This is a strong indicator and supports the theory that good property is still being inspected well and seeing strong competition. The properties we tried buyiung were in different areas, Middle Park, Brunswick and Malvern all different in type and condition bought well above our bidding estimate based on thorough research. So we are not seeing any bargains yet.

Still don’t believe me then take alook at this property which sold over the weekend which in my opinion was unliveable and needed at least $200,000 for underpinning and renovations. Quoted $900-$990,000 the property sold for over $1.2million

76 Union Street, Northcote

Looking at the Auction Clerance rates below, over the past decade Melbourne’s property market has seen some highs and lows however since 2013 the monthly average has remained steady moving between the mid 60 percent to the mid 70 percent range. The next year or two will indicate whether there the property market changes or not.

 

Thinking of buying or selling a home?

Visit our Street Advocate website or send an enquiry below or just call

Peter Sarmas on 0418 740 606

 

 

Auction Graph1

Source: Domain

Concerns Over Our Economic Future But No Crash

The Reserve Bank of Australia has recently predicted strong economic growth (3%) in 2018-19, which in turn is expected to see wage growth and inflation.

Unfortunately Mr Evan’s view is not so optimistic. “…the general feeling around Australia is that with the mining boom is behind us, and the housing construction boom having and the consumer remaining cautious, the growth outlook for Australia is not encouraging.”

As a result of this more pessimistic view, interest rates are expected to remain on hold at least until 2019 according to Mr Evans.

“Australia has no reason to raise interest rates,” he said. “Even though the market is now predicting a rate hike next year, it’s been our view for a couple of years that rates are going to remain on hold for 2017 and 2018.”

Banking Analysts Goldman Sachs have recently warned household will need to find an extra $42 billion of cash flow to fund mortgage costs due to higher interest rates for investors as more people are moved by their lenders into principal plus interest loans.

Less disposable cash will reduce retail spending by consumers. Bill Evans predicts house prices will flat line, rather than crash, similar to the aftermath of bank interest rate adjustments in 2015.  
 

Other Worthy Comments

Australian Households are leveraged at record levels due to income growth.

To trigger an equity collapse interest rates need to rise between 3-4%

90% of the housing loan market is controlled by 4 entities which means there are policies other than interest rates to slow house prices macro prudential tools – APRA

APRA has used its power to cool the Australian housing market by introducing policies such as capping the number of investor loans on loan books and applying tougher lending regulations around loans. Such policies have cooled the housing market in Australia without the Reserve Bank lifting the cash rate which in turn could impact the economy

Retail and Construction jobs have been the two strongest contributors to employment growth in Australia and Victoria.

The construction cycle in Victoria has peaked. The unemployment rate is expected to rise next year as a result also impacting the retail sector due to lower consumer spending

Victoria has between $5-$25 billion worth of public transport in the pipeline which it could deliver

Recent surveys have the Labour Party as the preferred party to win the next Federal election in 2019. Should Labour win property investors may see a raft of policy changes effecting tax which include the elimination of negative gearing and reduction of capital gains tax from 50% to 25%. Properties purchased prior to a specific date would be grandfathered. This in trun could see a rush to buy an investment property next year. But in future could also see investors turn away from property as an investment.

Melbourne’s strong population growth is helping put a floor on price and hold up property prices

Globally the US, Japan and Germany are at full employment with unemployment rates sub 5%

There is significant risk in China with housing market and economy slowing. This will lead to lower demand for Australian exports and lower commodity prices however we don’t expect a collapse

 

Thinking of buying or selling a home?

Visit our Street Advocate website or send an enquiry below or just call

Peter Sarmas on 0418 740 606.

 

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About the Author

Peter Sarmas is a Certified Property Investment Advisor (PIAA) and Vendor/Buyer Advocate. Before becoming the founder of Street News, Peter completed a Degree in Applied Science (Chemistry) and a Graduate Diploma in Property Valuations (Hons). Peter believes property investing is a major and potentially risky undertaking. In his view, everyone should have an independent person acting on their behalf when seeking property investment advice.

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