The Bank of Mum & Dad - Australia’s 9th Largest Bank

How’s the Melbourne Property Market? June 29, 2022

Why the bank of mum and dad is changing the way we look at growth in property prices moving forward.

Australia is a young country compared to the others we share the “World City” stage with, such as New York (211 yrs older), Tokyo (378 yrs older) and London (1,792 yrs older), and as we get older, things are starting to change as generational wealth is becoming more prominent. 

In a recent Money Mag article, I read “a whopping 60% of first home buyers turned to their parents for financial assistance to make their property dreams a reality, with the Bank of Mum and Dad loans totalling a staggering $34 billion [in 2021].”

This number kind of blew me away for a second, but then I thought about our clients and how many of them have assistance from their parents on a purchase, and there are quite a few, even second home purchases. 

Because of this, I believe it will throw a spanner in the works for any previous calculation that might have been used to establish pricing ceilings or when a market might be overcooked. Traditionally it was 5-6 times the average income of an area, then you look at the median to see where the market is. If the income is above the median, then the market has some room to grow, if it’s below, some would say it’s overcooked. However, this doesn’t take into account the deposits via gifts from the parents, some of which are in the millions.

It’s understandable as well, you take an average Mum and Dad, who might have been kids to immigrants, they recently received an inheritance from the sale of their parents' property and decide to give the kids a head start. It makes sense, and why there could be some gas left in the tank especially when the overseas migration opens up and we have the added pressure of 3,500 high net worth individuals (HNWs) looking to make Australia home in the next 12 months from all over the world.

What the agents are saying

Properties that were originally passed on, are now back on the cards. We saw one that had been on the market since March after a failed auction, that is now starting to have buyer interest return given the shortage of stock. This comes back to the supply and demand game and is part of the typical cycle of real estate.

Here is how a “normal” year would run in Melbourne.

Early months of the year, lots of stock, lots of buyers making use of the weather. June arrives, there are only leftover properties that didn’t sell earlier in the year, plus a few new ones here and there from sellers needing to list. Buyers have a bit of a break too for a few weeks, then out of nowhere, there is a “need” to purchase and they snap up all the residual stock causing a mini-boom.

The good agents out there, notify their pipeline of sellers, “We’re ON, number 14 sold for $100k over ask” and within weeks we have a heap of stock back on the market for buyers to soak up until we hit an oversupply. Vendors then postpone listing their property because conditions have changed, and the cycle starts over again.

We are currently in an undersupplied market to the public, so if I was a seller I’d be listing.

Movement in the markets we were working in

$2m plus (Houses)

This price point seems to be firing, with multiple homes over $3m selling above the quoted range. There was a property on Auburn Rd, Hawthorn that had four bidders and more than 180 bids at the auction before it was sold.

Experience will be playing a role here, and a bit of short-term pain isn’t going to stop these guys and gals from buying.

$1m-2m (Houses)

Things are taking a little bit longer to sell here, as they are with the early $2m’s as buyers don’t really want to throw their hand up at auction. This comes back to experience and not knowing the process, and if I was an agent, I’d make a short video on it and send it to potential buyers before an auction so they understand all aspects, especially the passing in of a property. I might even do one myself.  

The agents then have to keep everyone happy for a few days of negotiating, until they reach an agreement. In some cases, an auction after the auction is happening and properties are selling for more than what the vendors would have accepted on the original auction day. Crazy.

Sub $1m (Houses)

Agents are saying that it’s steady, with still a few offers coming in on properties but it has certainly normalised. Days on market numbers are lower at this price point compared to the inner-city markets, which is due to the number of buyers in the bracket even though there is typically more stock available.  

Renovation/Knock down or Move-in ready

I wanted to add one additional market this week and maybe something we will update every couple of months, but there has been a definite shift away from renovation/knock-down purchases due to the massive rise in construction costs. We have heard stories of 40% contract increases, which would be enough to put anyone off going down this road and why the move-in-ready stock is flying out the door.  

We will keep an eye on this one, but if you are in the market for a reno/knock-down and can hold it for a few years, now would be a great time to investigate.

Final Thoughts

For what would be a normally quieter week, there has been a lot going on in the industry. We will start to see more listings in the next few weeks as sellers get ready for their August auctions. Those who have already factored in a few more rate rises will be in pole position as the RBA announcements could soften the competition.

It’s still good buying, and we can see this being the case for the next few weeks if you can find the properties. If there is a rate hike in July, strike in the first couple of weeks if you find the right property.

Happy Buying!