It looks like winter has arrived early for Melbourne’s housing market, with auction clearance rates and sales volumes remaining lacklustre despite lower mortgage rates and sharply falling prices:
Home owners and agents will find little to cheer about following another weak performance for the auction market yesterday. The Real Estate Institute of Victoria said the clearance rate was 59 per cent for the 569 results reported to the group. The outcome of another 87 scheduled sales is still unknown.
The market’s performance has slipped slightly compared with the past four weeks, defying hopes the big interest rate cut early in the month would deliver improved conditions for vendors.
”While the clearance rate hovers around 60 per cent, it’s clear that the market continues to be impacted by low levels of consumer confidence,” REIV spokesman Robert Larocca said.
It’s a measure of how cautious buyers have become that not even a combination of cheaper credit and price falls are enough to attract them back into the market in any great numbers.
New research from RP Data-Rismark shows dwelling values have declined sharply across all price brackets in Melbourne, potentially wiping tens of thousands of dollars off the purchase cost of houses and units.
”We’re currently seeing Melbourne dwelling values back where they were in February 2010,” RP Data research director Tim Lawless said. ”I can’t see the Melbourne market turning around over the next few months, to say the least”…
Put another way, the slump has theoretically shaved $48,000 off the price of a $600,000 home over the past two years.
With these ”savings” on offer and the large amount of property listed for sale right now, it is clear why industry operators are calling this a ”buyer’s market”.
Except buyers aren’t taking the bait. The clearance rate, while an improvement on the end of last year, is lacklustre. Housing finance figures are weak. The number of sales is 20 per cent below the five-year average, according to RP Data.
”The reality is that housing still isn’t cheap even though we’ve had these falls,” said Louis Christopher, managing director of SQM Research. ”We may well be in a buyer’s market – and we are – but the reality is it could become even more of a buyer’s market. That’s what buyers are holding off on, that’s what some of them are counting on.”
In my view, a major reason why buyers are staying away in Melbourne is because many no longer expect prices to rise, while some expect prices to continue falling. Accordingly, investors and first-time buyers are less inclined to rush into the market for fear of “missing out” – a classic deflationary mindset.
And who can blame them, with Melbourne home prices falls now leading the nation, according to RP Data-Rismark:
RP Data’s Tim Lawless captured the change in house price expectations in a separate article in Fairfax over the weekend, which is likely reducing buyers’ willingness to commit:
”Realistically, anybody looking to build up wealth and equity in their property needs to have a long-term view. They’re not going to be accumulating equity in their property in the current conditions, or over the next couple of years, very quickly,” Mr Lawless said.
And consultant, Martin North, backed-up Lawless’ view, arguing that the days of strong price growth and the associated equity (“wealth”) accumulation are over for the foreseeable future:
”Property was a magic money machine for the last 20 years,” Mr North said.
”You basically went on at the start with a high mortgage, paid it down, maybe traded up a couple of times, and you ended up with a very significant pool of equity.
”I don’t think we’re going to see that over the next five to 10 years … which means there is a generation now who won’t get the sort of returns from their properties that they were expecting to get.”
As mentioned many times before, Melbourne’s housing market appears to be facing a perfect storm. The three largest sectors of Melbourne’s economy – property, manufacturing and finance – are contracting, home prices are still way overvalued (with rental yields that are by far the lowest in the nation), there is a significant oversupply that will get worse just as new home stimulus is about to end, and as outlined above, demand remains lacklustre.
