Ray White Carnegie Monthly Market Update

April 2014

Market Slowdown is a Positive

Amid the Easter and Anzac Day holiday break, auction volumes slowed and various data houses reported price growth in the Melbourne property market dipped. But RP Data analyst Robert 

Larocca said rather than the April results being concerning news, the plateau should allay concerns expressed recently by some other commentators that Melbourne property has entered a period of 

rapid and unsustainable growth. 

According to the latest RP Data/Rismark Home Value Index, the Melbourne median dropped by 0.4% last month, with the auction clearance rate at 64% compared to 70% in March. Meanwhile, News Ltd 

reported Melbourne price growth so far in 2014 is at 5%, with values year-on-year up by 12%.

Interestingly, SQM Research reported stock levels remained level from March to April, bucking the seasonal trend of listings falling in Autumn. Director Louis Christopher said the result is another 

indication that the market may be in a brief lull overall. Regardless, historically low interest rates continue to drive a healthy level of buyer activity, with the 

Reserve Bank leaving the official cash rate once again on hold after its May meeting. While there have recently been conflicting predictions about how long it will be before rates begin to move 

upwards, almost double the expected number of new jobs was created nationally in April, bringing forward the likely timing. CBA economist Michael Blythe said unemployment is showing signs of 

peaking, confirming the bank's prediction of a rate rise in November. While it's long been impossible to accurately predict the future of the property market and broader 

economic conditions, good opportunities do exist currently for both buyers and sellers to transact in a marketplace that exhibits a healthy balance between demand and supply.

March 2014

Melbourne Property – Pause, Then Proceed

The most recent report from researcher RP Data indicates that around Australia, overall capital city property prices stayed level in February after 10 successive months of continual growth.

But in the local property market, auction clearance rates remained high on the back of strong buyer demand, prompting a series of higher than expected sales outcomes.  While not every property in every price range on the market falls into this category, it is clear that well-priced and well-presented properties are currently being hotly contested by very willing buyers.

Figures released early in March by the Foreign Investment Review Board revealed that investors from China are buying up 14% of all new properties in Melbourne, with Victoria attracting the highest number of approvals of any capital city for proposed overseas real estate investment.

For local buyers, historically low interest rates are the most obvious driver of the highest level of buyer confidence in the property market we’ve seen in some time. While the Reserve Bank left the official cash rate on hold once again at 2.5% in early February, the experts are now almost unanimous in their predictions that rates will be on hold until at least the middle of the year.

Offering property buyers additional reassurance regardless of official movements, lenders are fighting hard to grow their market share, slashing the interest rate on fixed-rate home loans in the battle to attract new customers. Three of the four big banks are now offering two year fixed loans at 4.84%, with NAB offering the lowest rate of all four for five year fixed loans at 5.06% and five year fixed loans at 5.69%.

For the property market, all of this is good news. With a healthy balance between supply and demand, opportunities for both buyers and sellers abound in the current environment.

February 2014
Melbourne Property First Out of the Gates
As the property market moved back into full swing after the extended summer break, Melbourne has been the star performer across Australia’s capital cities.
According to the latest Home Value Index from RP Data/Rismark, Melbourne price growth topped growth across the country in January, with a 3.2% gain comparing to a 0.8% rise in Sydney and national growth of 1.2%. Year-on-year, Melbourne dwelling values are now up by 11.9%.
Analyst Tim Lawless said while the rapid price growth of recent months is not expected to continue this year, price declines are also unlikely. Rismark chief executive Ben Skilbeck said strong population growth in the state, an increasing appetite for credit and positive consumer sentiment will support prices in the near term.
At the same time, SQM Research has reported that the number of properties for sale in Melbourne fell by 3.4% in January, the most substantial decline in all capital cities. Total listings are now 5.4% lower than this time last year.
Meanwhile, after its first meeting for the year in early February, the Reserve Bank announced the official cash rate would once again remain on hold at a historic low. Experts are now widely predicting interest rates will remain on hold for the next few months.
RP Data’s auction analysis showed the confidence characteristic of the market in the second half of 2013 is clearly continuing into the new year, with 74% of properties up for sale in the first round of auctions in early February selling under the hammer.
With all signs positive for continuing buoyancy, the healthy balance in the current environment between buyers and sellers offers good opportunities for both sides of the property equation.

January 2014

Melbourne Prices Heading For New Peak

With the first Reserve Bank (RBA) meeting in 2014 scheduled for the first Tuesday in February, the outlook for interest rates this year is rapidly becoming a hotly contested topic of debate amongst economists. Just prior to Christmas, Westpac’s Bill Evans released a statement saying that although he still believes there is a strong case for more rate cuts, he has now pushed out his earlier predictions for cuts in February and May, to May and August.

Conversely, some commentators believe the RBA is more likely to leave the official cash rate on hold throughout 2014, while others are forecasting a rate increase in the third or fourth quarter. ANZ’s chief economist Ivan Colhoun says the broad divergence in predictions is due to an unusually large number of uncertain “moving parts” in the economy, including the strength of the dollar, mining investment and unemployment.

It’s clear low interest rates have been a key driver behind property price growth in Melbourne over recent months, with 2013 growth at 7.5% according to the most recent reports from researcher RP Data. The increase has taken Melbourne’s housing market close to a new high, with the RP Data/Rismark House Price Index showing prices are now just 0.9% lower than the 2010 peak. Angie Zigomanis of BIS Shrapnel said much of the recovery in Melbourne prices has been in the inner and northern suburbs, with outer suburbs somewhat less buoyant.

Looking forward, APM’s senior economist Dr Andrew Wilson said he expects property activity to moderate over autumn. Louis Christopher of SQM Research said he believes the Melbourne market is currently at a healthy equilibrium between buyers and sellers.

The start of a new year traditionally brings a sense of optimism to the property market after the extended break in trading. We anticipate good opportunities for sellers of well presented properties to transact with willing buyers.

Matthew Hurlston

December 2013

Seasonal Slowdown

The Reserve Bank’s December announcement that the official cash rate would remain on hold for the fourth month in a row at 2.5% was widely expected. While the conjecture continues in the financial market about the RBA’s next likely move, accompanying comments by Governor Glenn Stevens suggest the cutting cycle is now at an end.

Meanwhile in the property market, price rises recorded over recent months stalled in November according to the latest report from researcher RP Data.  Nationally, capital city prices flat-lined last month, increasing by just 0.1% overall, while Melbourne prices fell by 2.1% after recording growth of 1.2% in October. Analyst Cameron Kusher said affordability issues in both Sydney and Melbourne have begun to bite, suggesting the peak rate of growth in both cities may have passed. Andrew Wilson agreed, saying he believes both clearance rates and price growth in Melbourne have already peaked this cycle.

But SQM Research reported the number of Melbourne property listings rose by 10.7% in November, with director Louis Christopher describing strong listing activity in late spring as a normal seasonal event and the prime reason why the Melbourne clearance rate has dipped below 70% over recent weeks. Christopher says he is not concerned about any new slowdown in the market.  Chief executive officer of the Real Estate Institute of Victoria (REIV) Enzo Raimondo was even more vehement, saying an expected seasonal slowdown is not evidence of a plateau in the market. He says that the REIV house price index indicates that although house prices grew less in November than the 2.3% recorded in October, they did not fall.

Regardless of what happens in an unpredictable 2014, with less than three weeks to go until the market effectively closes for the extended summer break, many buyers and sellers are showing an increased motivation to exchange contracts before the end of the year. This annual shift in dynamic creates unique opportunities for both sides to negotiate a mutually beneficial agreement, heading into the New Year with the peace of mind that a sale has already been concluded.

November 2013

Melbourne Property Market Continues to Heat Up
While the Reserve Bank quietly announced the official cash rate would remain on hold at 2.5% for the third month in a row, the attention of most Australians was firmly focused elsewhere – on the nation’s biggest horse race.
The economic tipsters were out in force though, with the most recent data suggesting the current rate cutting cycle is now at an end. Futures markets are now pricing in a 63% chance the next official move will be upwards, although any change could be as much as a year away.
Of more concern to the property market was the move by major lenders last week to increase interest rates on fixed rate loans, apparently due to increased global funding costs. ANZ, Westpac and NAB all increased their three year fixed rates by 20 points, while ANZ and NAB left four and five year fixed rates level. Conversely, Commonwealth left its three year loan rate level, raising its four and five year rate by .20%. It’s the first time since 2010 that fixed rates have risen and commentators are saying out-of-cycle increases are now also on the cards for variable loan rates.
But the latest data suggests the Melbourne property market is continuing to heat up unabated. SQM Research reported the total number of Melbourne properties listed for sale rose by 3.9% last month, remaining 3.6% lower than October last year. Meanwhile, the Melbourne auction clearance rate remained above 70% throughout the month, showing demand is continuing to soak up supply.
The October RP Data/Rismark Hedonic Price Index showed Melbourne house prices rose by a further 1.2% during the month, bringing the year-to-date growth to 8.7%. Analyst Cameron Kusher said international factors are also driving the Melbourne and Sydney property boom, with recent data from NAB showing 13% of all new home buyers are Chinese.
While rapid price growth is leading to increased talk of a property bubble, many economists disagree. According to a report issued late in October by analyst BIS Shrapnel, Melbourne house prices will be only 6% higher in three years time.
Regardless of an uncertain future, sellers in the current market have a clear opportunity to transact with willing buyers, provided they maintain reasonable price expectations.

October 2013
Market Surges
Two huge weekends in September boasting almost double the long term average number of auctions had bookends of limited auction activity in Melbourne over the weekends hosting the Federal election and the AFL grand final. With auction clearance rates consistently over 70% throughout the month, analysts are now saying the Melbourne market, along with Sydney, is driving the start of a surge in Australian property values.

The latest RP Data/Rismark Hedonic Home Value index revealed Melbourne prices have risen to a record high, growing 2.4% over September with cumulative growth of 5% over the September quarter. RP Data’s Tim Lawless said Melbourne conditions are currently the strongest on record since May 2010.
At the same time, property analyst SQM Research reported the number of listings in Melbourne fell by 6.5% in September, in contradiction to the traditionally rapid increase in listing numbers that accompanies the commencement of the spring selling season. Director Louis Christopher said total listings are now expected to rise throughout October and November.
Along with the reports of price growth has come renewed speculation over a property price bubble. Shane Oliver of AMP told Property Observer he believes some elements of a property bubble have existed in the Australian market for more than a decade, but others are not apparent. Oliver believes rising unemployment will constrain house price growth regardless. RP Data’s Victorian housing specialist along with several other prominent analysts have described the bubble talk as premature. Robert Larocca said growth in the Melbourne market has been evenly spread across all price segments, telling the ABC there was “unrealistic alarmism” in the market.

Meanwhile, the October Reserve Bank (RBA) decision to leave the official cash rate on hold was widely anticipated. With two major lenders pushing their predictions forward, rates are now expected to remain on hold throughout the remainder of 2013.
While the future is always unpredictable, the current environment features healthy buyer activity and a genuine willingness to act. Vendors of realistically priced and well-presented properties will have the opportunity to transact in reasonable time frames.

September 2013
Booming Auction Numbers Set to Test Market

The media was dominated throughout August by the political debate, with the Reserve Bank’s decision to leave the official cash rate on hold at 2.5% in early September barely rating a mention.
The coalition’s subsequent landslide victory had become increasingly expected as the Rudd/Abbott battle escalated in the lead up to the Federal election.

Property pundits appeared unconcerned with the outcome of the RBA meeting or the election, with buyers and sellers barely pausing. While experts remain divided on the effect a change in Government will have on the market, RP Data’s Time Lawless has said Melbourne conditions are the best they’ve been since 2009 for a strong spring selling season.

The latest RP Data/Rismark Hedonic Home Value Index showed Melbourne house values grew by a healthy 4.5% over winter, despite recording no growth in August. Units fared even better, achieving 6.8% growth over the quarter, including 1% growth in August. According to researcher APM, while Melbourne recorded the highest growth of any capital city over the June quarter at 5%, its median price still remained 1.4% lower than the mid-2010 peak.

According to the Real Estate Institute of Victoria (REIV), there were around 600 auctions held in Melbourne per week throughout August, compared to the long term average of around 500 per week. The various property researchers all reported auction clearance rates above 70% over the month, indicating a healthy balance between supply and demand and the best result since 2010.

The spring season is due to bring with it a surge in the number of properties for sale that will further test the market, with almost a thousand auctions due to be held across the city on both September 14 and 21. APM’s senior analyst Andrew Wilson said the auction clearance has already pulled back since August where it looked as if it may push through the 80% barrier, on the back of rising volumes.

It’s yet to be seen whether the market will readily absorb the extra stock coming to market or if clearance rates will instead fall. Critically, vendors in the current market need to remain realistic with their price expectations in order to ensure the maximum competition between buyers for their property.

August 2013

Rate Cut Reinforces Buyer Confidence

While the Reserve Bank’s decision to cut the official cash rate by a further 25 basis points in early August had been widely expected, the rush by lenders to pass on the cut in full to consumers within minutes was received by the markets with some surprise.

The banks’ speedy reaction was in stark contrast to earlier rate cuts, where lenders delayed decisions for days or even weeks, often cutting their rates by less than the RBA while citing increased costs of borrowing. The official cash rate is now at its lowest level since 1959 and consumer loan rates are at GFC levels.

Property researchers continue to vary in their market reports, although all agree Melbourne prices are trending upwards on the back of rising confidence spurred by low interest rates. The latest RP Data/Rismark Hedonic House Price Index indicated Melbourne property prices grew by 2.3% in July, taking the year-to-date growth to 4.6%. Meanwhile, according to the Australian Bureau of Statistics (ABS), Melbourne prices grew by 3.3% in the 2012/2013 financial but surged by 2.4% in the June quarter. APM has reported Melbourne house prices are now approaching their previous peak.

But RP Data analyst Tim Lawless told Fairfax this latest rate cut comes with risks for the property market, with economists warning the RBA’s attempts to keep the wider economy afloat may overcook an already hot housing market.

SQM Research has released its July Stock on Market Report, which showed the number of properties for sale has fallen in every capital city except Melbourne and Canberra. According to the data, Melbourne now has one of the highest levels of stock of any capital city and is one of the only areas in which the number of properties for sale is higher than the same period last year, climbing by 2.8%. CEO Louis Christopher said despite high Melbourne auction clearance rates, the high number of properties for sale is creating headwinds for a housing recovery.

With just a short few weeks until the spring selling season brings an influx of new stock to the market, the current environment offers both vendors and buyers some good opportunities to transact before conditions change once again.