Just when we all thought that we were out of the woods, Melbourne is now back in a Stage 3 lockdown for 6 weeks with Covid 19 cases rising alarmingly each day.

Let’s take a look at what this means for the property market in Victoria.

STAGE3 – WHAT DOES THIS MEAN FOR PROPERTY?

• Housing/shelter is an essential service and therefore we are all allowed to travel to inspect a property that we may wish to rent or buy.
• We are all back to private inspections only.
• No more open for inspections in restricted zones.
• No public auctions in restricted zones. Virtual auctions are permitted.
• Residents should not be present at the time of inspection. Only the agent and one other person should be present.

HOUSES

• House price median fell 3.5% in the latest June 2020 quarter.
• Median house price in Melbourne is $864,000.
• Year to date house prices are up 6.1%.

UNITS

• Unit price median fell by 2.5% in the June 2020 quarter.
• Median unit price is $621,000.
• Year to date unit prices are up 6.4%.

Source:  REIV June Report

CLEARANCE RATES

Clearance rates in Melbourne are shifting upward against lower volume to 74.5% year to date. This is the highest clearance rate in Melbourne since January 2018.

GREVILLE’S OBSERVATIONS

• It seems someone has pushed the pause button.
• Recent negotiations that I have been involved in have been protracted, ie settlement terms adjusted and extended, subject to finance clauses are becoming more common.
• Property predictions and crystal ball gazers who call themselves property experts, but have no formal property degree nor spent a day on the street. Mostly they are headline seekers or about to release a research paper or book to sell.  My advice, don’t listen to them. You buy or sell a house. You don’t buy a street or a suburb or a median price for a suburb or a clearance rate for Victoria.  There are some suburbs that have risen 20% in the last year and some suburbs have had clearance rates over 80%.  I am tired of these pundits saying property prices are going to collapse.  I have spent 35 years in the property market.  If anyone would know it would be me and to be brutally honest, even I don’t know.  The future is too uncertain to predict right now.
• This is what I do know. Buyers and sellers have retreated.  Buyers are still looking but are more discerning.  Sellers have withdrawn their property from sale.  Many are spending the money they would have spent on holidays on home renovations. Bunnings were busy last time I visited.
• This is the lowest level of supply I have seen in my 35 year property career so far.
• I am not seeing distress yet.
• I am not seeing wholesale falls in property prices. This view is now supported by statistics released last weekend by the REIV.
• Over 80% of all sales are now by private treaty and off market. Most property I buy for my clients come from conversations I have with other agents.  They are properties that are not advertised or on the internet.  Auctions represent less than 20% of the market, making clearance rate statistics almost irrelevant.
• Private treaty/off market sales are surprisingly strong. I have witnessed many record results in recent weeks.
• Regional and lifestyle property is in demand from both retiring baby boomers and younger families. Last month I was on the Mornington Peninsula looking for a holiday house to buy for a client.  I had expected to find lots of sale boards, my reasoning, in difficult            times the discretionary holiday house is the first to go.  Well, I got that wrong!  Nothing on the market and local agents saying residents have battened down with many of these properties simply  passed down to the next generation of families.  I expect the sea change/tree change trend to accelerate post Covid 19.
• Quality family homes priced in the $1m- $3m bracket remain strongly bid by buyers and usually don’t sit on the market for very long.

KEY RISKS

• The unemployment rate is something I watch closely as it will start to affect property if we go to double digit. I have witnessed the affect twice before in 1983/1985 and 1992/1993.
• Vacancy rates have been rising in the rental market having moved from 2% to 2.8%. 3% remains a balanced market.  Rent in some areas have fallen 20%-25% and letting up periods are starting to lengthen.
• Off the plan and high density apartments remain a key risk due to their oversupply. Valuation settlement risk remains high.  I have observed recently an off the plan sale for $750,000 in 2015, resell this year for $550,000.  Falls of 15%-25% in capital value upon resale are not uncommon for this highly specialised asset class.  A reason why I rarely buy anything shiny and new or high density for my investor clients.

If you are looking to buy or sell in today’s property market, contact Greville Pabst for advice first.