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Spring tipping point for Melbourne property market?

August 30, 2012

A slower-than-usual increase in new residential property supply in spring may well underpin prices and auction clearance rates in the inner and middle suburbs of Melbourne.

Our sense, as things stand, is that spring 2012 will be characterised by reasonably good demand. That's based on our experience of the winter market which saw robust competition amongst buyers at many auctions in our inner and middle suburbs off the back of improved affordability stemming from lower prices and interest rates.

However, from discussions with a broad number of industry colleagues, it looks like supply will be tighter than usual at the start of spring, and that the increase in supply we characteristically see in October may not happen. We could be looking at a late run of supply in November and early December.

If we’re right about demand building and constrained supply, the result should see auction clearance rates rise substantially and prices firming with the possibility of some early spring capital growth.

Testing ground

Early spring is often viewed as a testing ground by prospective vendors and buyers. If September performs well in terms of clearance rates and pricing, it can encourage other buyers and sellers into the market.

A late run to Christmas may also set a positive tone for the 2013 market when it re-opens in early February. And this would augur well for prospects in 2013.

Where to invest

Recovery is likely to felt first in areas where supply is relatively scarce and finite – established houses and apartments in our inner and middle ring suburbs. Avoid property where supply is plentiful and theoretically infinite such as high rise apartments in the CBD and properties on new estates in our fringe suburbs.

Pricewise, the sub $600,000 market is likely to recover first. This is where first home buyers and most investors operate. First home buyers, in particular, benefit most from falling interest rates, given their reliance on borrowing and low equity.

Interest rates

Assuming we see interest rates remain stable throughout the last quarter of 2012, it may well contribute to firming market fundamentals and confidence in late 2012 and early 2013. This will be a signal that the economy is travelling better and no further stimulus via interest rate cuts is required.

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