“30% Price Drops”, Ring Any Bells?

How’s the Melbourne Property Market? June 22, 2022

30% price drops and a 6.5% cash rate, were among some of the news headlines I saw this week, along with more construction industry concerns. In regards to the 30% drop, doesn’t this feel a bit like the start of the COVID and the lockdowns for us in Melbourne? I can pretty much guarantee the whole of Australia would have bought a property at that time if they knew what was going to happen to the market. 

What the agents are saying

With the 1-degree mornings upon us and private school kids on holidays, it seems the agents have “left the building”, in search of warmer weather. During our calls this week, we had all sorts of conversations. Some agents are going to Europe for a month, and others just wanting a sabbatical until vendors wrap their heads around market expectations and how they might not be able to achieve the same price as across the road which sold last year, we have even spoken to a few agents who have left not just the building, but the entire industry. 

Again, this does start to ring bells for me as the start of COVID when the market was unsure and both buyers and sellers didn’t know what to do. 

Stock-wise, it is certainly a game of who you know and not what is coming onto the platforms. I would estimate currently 70% of the market is “offline” or “off-market” and waiting for Spring. Why it’s a game of who you know is because the agents are working at securing these properties for Spring, they know what the sellers want, and the clever agents will utilise this time to try and sell off-market.

How do they do this? Well, they start within their firm to see if they have any buyers, then they will go out to professional buyers advocates, some brokers, developers and builders. They might then move onto a specific target audience with a few phone calls until lastly a mass blast out to anyone who has gone through an open with that agency. 

So if you are on the lookout, make yourself known to the agents and ask to be put on the “hot buyers list”, I know it’s archaic but they will know what you mean. 

Movement in the markets we were working in

$2m plus

As we have seen before, this market is the first to move as they might be a little older, and have past experience with uncertain times. They have gone back to the bank or broker and ran the numbers to understand their new affordability with the interest rate hikes, and are off buying again. 

We saw multiple quality properties sell with a decent amount of interest this week, something we haven’t seen for some weeks, and if you refer to my update 2 weeks back this is what I said might happen, as it’s what we saw coming out of lockdowns. 

$800k to $2m

I’ve combined a few price points here because they are all nearly the same this week, and that is nervous. There are still very wary buyers in the mix here, and might not have been able to book in time with the broker to assess numbers and affordability. 

Sub $800k

This group is 50/50, they lean on Mum and Dad a bit for insights, who will probably watch the news and get scared into oblivion freezing them from doing anything. Then there will be others who have a pre-approval and just want to get into something asap and they don’t care because they are sick of paying rent or living at home.

This is also the largest buyer pool, and because of this it’s a great price point to invest in given there are usually always buyers around. The peaks and troughs are less severe here as well, meaning losses can be quickly regained in the next cycle and you are less likely to be affected heavily by selling in a down market. For example, say you purchase a property for $400k and over 10 years and a great run it becomes worth $800k. You then want to sell it because you want to put the kids through school, but the market isn’t doing so well and has retracted 5% from the peak of $800k back to $780k. An on-paper loss of $20k after a gain of $380k is something I think most people could stomach. 

Now, this is strictly talking about good investment properties and not high-rise apartments, high-density townhouses or house and land packages in Timbuktu. Solid blue-chip investments that have area history and will stand the test of time. 

Stock availability

Definitely slowing down, and as last week, agents will sign sellers up with the view to run off-market campaigns through the colder months and if not sold, launch end of July/early August.

In the media

This is the article from the AFR mentioning the 30% price drop  https://www.afr.com/wealth/personal-finance/aussie-house-prices-could-fall-more-than-30pc-20220617-p5auhv

Whilst I’d like to think they put out good content, or maybe slightly better content, in the end, it’s still in the business of selling newspapers. 

Please also note at the top, where it says “Opinion” not fact, and this is something people need to be aware of. Just because it’s in the newspapers doesn’t make it true, so please read all you like, but review it under your own steam and not someone’s opinion. I have a story about a journalist from Seven in regards to a recent sale, but I’ll save that for next week. 

Final Thoughts

All in all, lots happening this week from a monitoring standpoint. We are buying for a couple of our clients this week due to the opportunities presenting themselves, and negotiating as hard as possible due to the lack of competition.

It will be a couple of quiet weeks however with school holidays starting on Saturday, but l if you can take these times to reach out to agents and get access to something when there are less people around, why wouldn’t you take advantage of that. 

Happy buying.