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Davidson Property Advocates

15 William Street Cremorne 3121 Victoria Australia

FOMO is Out, FOOP (Fear of Over-Paying) is In

A Subdued Market

As we pass the winter solstice of 2022, we are witnessing substantial shifts in the real estate world as the market restabilises and we continue to navigate the new normal.

There has been a great deal of discussion regarding the markets receding and clearly, it’s started. Melbourne property prices inched lower by -1.1% in July 2022, reaching a median dwelling value of $798,198, according to CoreLogic data. 

While a subdued market is to be expected in times of uncertainty, it is important to keep in mind that auction clearance rates can appear inflated. Yes, there are houses not reaching reserve, but the deeper question is - ‘why?’ A high percentage of agents have not worked in a changing market. It is safe to say agents have enjoyed an affluent market for many years and, as a result, they may not necessarily have been challenged previously and are only just developing the new skillsets required. When a market shifts, the seasoned agents who have invested in development and communication have the tools to prepare and equip their clients so that the client makes the right decision at the right time. These agents excel at the art of communication.

Currently, the market is being propped up by very low supply. Agents have taken this time to enjoy some R&R, which can be evidenced by the number of automatic replies to our brief releases. During this lull and after the last two years, who can blame them? The agents that did stick around were active with the remaining stock on market. What we will see in the next two weeks is agents coming back online and we will start to get a feel for how Spring will shape up, as their pipelines either grow or stagnate.

It is also important to look at the big picture: Melbourne housing values are still up by 8.6%, or approximately $24,200, since pre-COVID and we have generally had it good for the past 30 years. In other words, the value of real estate has held through the long-term. 

Some suburbs in Victoria have even seen prices double in the past 5 years, despite our infamous lockdowns.

For example: 

  • Anglesea on the Surf Coast – 145% median house price increase – from $652,000 in 2017 to $1.6 million now. 
  • Cape Paterson on the Bass Coast – 143% median house price increase – from $370,000 in 2017 to $903,000 now.

Obviously, there are a multitude of factors involved in housing value growth, but generally quality real estate is protected to a degree. Secondary property is more susceptible to short-term price impacts. Properties that are compromised in some way, by main roads, overlooking, and irregular shaped allotments, for instance, are always first to be affected by any market shift.

Source: CoreLogic
Source: CoreLogic

If there’s one thing buyers need during times of uncertainty, it’s the eyes and ears of an expert who has experienced highs and lows of the market and can skilfully discern risk in your property decisions. By guiding you to navigate a fast-changing market, our team at Davidson Property Advocates can add immense value to your long-term property plans.     

Case study

Source: Buxton - Port Phillip
Source: Buxton - Port Phillip

We were engaged as Vendor Advocates for the above property. Preparation was expedited as the market was moving downwards markedly at the time of listing. As they say, time is money - never truer than in this case. To ensure a maximum return for our client, essential investments included full internal painting, extensive landscaping, a window clean and house wash, chimney sweeping, and internal styling. Due to our extensive black book of trades, we were able to coordinate this in record time.  

We analysed the market demographic and chose to press ahead with an auction during school holidays (versus waiting three further weeks). The momentum grew and the collaboration with Zoe Cherrie of Buxton was excellent. We brought the auction forward a week based on strong interest. Buxton quoted $1.9 - $2 million with a $2 million reserve. Three bidders participated and the c.1895 period home sold for $2.396 million to cheers from the crowd. This was a prime example of quality real estate propped up by low supply in a turning market. 

Micro Market View

Rate rises

Interest rates have been the talk of the town in recent months for obvious reasons. As a quick recap, the RBA made three back-to-back increases to the cash rate: 25bp in May, 50bp in June and another 50bp in July. This month's rise marked the first time Australia has seen a consecutive rate hike of half a percentage point. 

 These increases reflect the RBA’s efforts to:

  • contain surging inflation 
  • normalise the extreme monetary policy they implemented during the pandemic. 

With the US leading global inflation pressures, the RBA’s move follows that of central banks in the US, New Zealand and Canada as they all work to curb inflationary pressures. We continue to watch inflation figures from America, as what happens there will heavily impact our economy and property market. The old saying “when America sneezes, the world catches a cold” rings particularly true in 2022. 

Following on from the cash rate rise to 1.35%, the Commonwealth Bank of Australia is forecasting an RBA cash rate of 2.60% by November. What does that mean in real terms? The RBA's May average variable rate for existing owner-occupiers of 3.07% is estimated to move to 5.32% by November, assuming banks pass on the full rate.

At this junction, it is probably prudent to have a loan review and know your options. We collaborate with a number of brokers if you are seeking a trusted referral.

Undocumented metrics
 of a changing market

We are all familiar with CoreLogic metrics, predominantly the tracking of a suburb’s median house and unit price, coupled with other statistics such as Comparable Market Analyses completed by agents, for example. 

It should be noted that there is a lag time between market movements and CoreLogic reporting. So, what metrics do our advocates use at this time to ensure meaningful knowledge for our clients? At Davidson Property Advocates, we speak to hundreds of agents each week. These conversations create a metric of sorts. We learn of off-market sales, market intel and we can track agent market interpretation – on the ground, in real time. 

We are aware of off-market sales yet to be reported, we gather the intel from buyers and agents alike, and we then formulate the right advice for our clients. We gauge the number of unsolicited off-market approaches from agents, as well as price reductions. Agents are far more amenable to sales prior, in fact we wouldn't be surprised if there is an increase in Expressions of Interest sales to avoid the dreaded 'pass-in'. 

Example: Property Acquisition on 9th July 2022 - Lifestyle Property

  • Quote range: $2.1 - $2.25 million 
  • Purchased: $2.055 million 
Source: Peake Real Estate
Source: Peake Real Estate

Communication with agents is an absolute necessity in this market. No longer can you take the estimated selling range (ESR) at face value - our last two transactions came in below the ESR. The trap that buyers fall into is the expectation that a property will sell above the range.  

Spring and beyond

Traditionally, more homes will enter the market in Spring, but our feedback from agents indicates that the pipeline of property listings is not as healthy as they would like; certainly not the number you would expect to offset the slim pickings we have seen. Nonetheless, we do expect an increase which will somewhat counteract the supply and demand struggle currently propping up prices. 

The market may see a further 5% retraction, however not all properties are the same. As previously mentioned, the type of property you are transacting underscores the result you may see. 

Our guidance and advice is leading client discussions currently. For instance:

  • Case Study 1: A client considered an investment apartment sans balcony. We know that a balcony post-COVID is essential for rental and resale, and we advised accordingly.
  • Case Study 2: An inspection of a lovely home with hardly any room to move amongst the throngs of buyers seemed appealing, however we knew the price would be inflated due to a lack of supply. We anticipated the property would decrease in value when supply righted itself, due in part to overlooking from a commercial premises. This is what can make off-market opportunities very appealing at this juncture. 

As such, we have seen a marked rise in off-market opportunities. We know from independent research conducted in 2018 (a changing market not unlike 2022) that in times of uncertainty, the offerings of off-market opportunities increases. As an example, in Hawthorn, more properties were transacted off-market than at auction in 2018 - a very surprising result and one we believe had never been analysed previously. 

Why does the availability of off-market properties spike during uncertain times? In a nutshell, marketing expenses and confidence. To sell a property, even with the most basic package, can cost thousands. Owners uncertain of the price they may achieve prefer zero financial commitment in the interim and will, therefore, waive marketing fees by way of an off-market sale. 

Tied to the ocean?

Tracey Macmillan - specialist on the Mornington Peninsula
Tracey Macmillan - specialist on the Mornington Peninsula

The coastal market is changing. After some amazing growth, it is evident that prices are easing slightly for those seeking a seachange. While it is doubtful that prices will return to 2019 levels, we do expect to see a retraction in prices moving forward.  

Thinking of a seachange? Make sure you have all the information and intel to make an educated decision.  

We specialise in the Mornington Peninsula markets. Call us so we can steer you to an excellent outcome.

Economic Snapshot

Implications to the economic outlook

Anxiety might be growing about the economic outlook due to high inflation and interest rates, but the silver lining is that our economy is in fairly good shape.

For starters, we're seeing an increasingly tight labour market. The latest jobs data showed the unemployment rate plunging to a 48-year low of 3.5%, according to the Australian Bureau of Statistics. The ABS noted that in June 2022, there was almost one vacant job for every unemployed person in Australia. What does this mean for everyday Australians? Households will be able to enjoy some level of income security to offset the higher costs of living, mainly affecting housing and fuel.

However, the good news is being seen by some experts as a double-edged sword. Strong employment may prompt the RBA to tighten its monetary policy even faster, especially given Governor Philip Lowe’s expectation of 7% inflation by year’s end (he also anticipates inflation to come back down in the first 2 quarters of 2023). We’ll know soon enough, with June quarter inflation data due to be published on July 27 – less than a week before the RBA meets again for its August meeting, where experts are predicting an almost guaranteed 50bp rise.

Despite high inflation not expected to be prolonged, the Westpac Melbourne Institute Index of Consumer Sentiment dipped by 3% to 83.8 in July – the 7th monthly fall in a row. When consumers are concerned about the economic outlook, they tend to pull back their spending. Falling sentiment and the effects of the RBA’s rate rises are starting to trickle down to household spending. Broader consumer spending saw a marginal uplift of 0.9% to 117.3 in June, according to the CommBank Household Spending Intentions Index. However, this was mostly driven by elevated spending on non-discretionary areas including transport, education and household services. Non-essential spending generally fell in June and is expected to continue falling in the months ahead. As people have to dedicate more of their income paying off their mortgages, it likely means there will be less left over for discretionary spending.

While there are mixed factors that will impact the fiscal outlook and property market in the short to medium term, these should not be seen in isolation, but rather considered in the context of a strong underlying economy.

Let’s start now.

Simply call +61 0 417 391 987, email us
or leave your details below and we’ll be in touch.