While most people have their eyes firmly fixed towards the festive season and holiday break once we tick over into December, it’s a useful time to look back on the Spring property market that has just passed, to gather some takeaways and learnings that we can apply going forward.
This Spring has lacked the intensity and hype of some previous years, particularly during the heated COVID-19 market years. Given that, headlines were more muted and market commentary less colourful than other Spring selling periods.
Having said that, there have been a few topics of discussion.
Underquoting is a perennial topic that typically sparks up when the market is running hot.
Buyers can get frustrated if they are consistently missing out on properties, especially if they’re being sold at prices well above the initial quote.
Given the more balanced market, it was interesting to see a series of media articles in the lead up to Spring, speaking to a range of industry professionals, all concerned about incidents of underquoting.
That’s interesting given the market hasn’t been as intense as it typically is when underquoting comes to the fore. One of the issues being discussed included the merits of having disclosed reserves, which is advocated for by a number of senior real estate agents across the state, including John Keating, Managing Director at Keatings Real Estate in Woodend. He has been a longtime proponent of disclosed reserves and applies the principle to his own sales campaigns.
Low vacancy rates
Another major issue in Spring, but also throughout the year, has been the low vacancy rates in the rental sector. The issue stretches as far back as 2022, but the vacancy issue has been increasing in intensity. Median rents for houses and units have certainly continued to trend upwards as well, although not quite as sharply in the last six months as what they had been in the past.
But again, that may very well change in early 2024, as we typically find the first quarter of any calendar year is when the rental market is typically at its most competitive, and therefore most difficult from a tenant’s perspective.
Currently, the vacancy rates are sitting at around 0.8% for houses and about 0.9% for units, which is very sharp.
To put that in perspective, in a balanced market, we would typically see vacancy rates anywhere between 2% and 3%.
So what’s driving this? Well, there are a number of factors, one of them being Melbourne’s rapidly increasing population, with international arrivals ramping up after COVID-19.
International students are a major contributing factor, as they all need accommodation, most of it being rentals.
But another contributing factor is the lack of supply. There’s been a backlog in the construction sector over the past few years off the back of COVID-19.
Construction costs have increased, so for many developers, the numbers simply don’t stack up, evident in the number of building companies that have gone under recently.
Another driving factor behind the low rental supply is the increasing numbers of property investors who are choosing to sell-up, due to growing market and government disincentives.
Heightened interest rates and more stringent government taxes and regulations have discouraged many property investors to the edge, who have chosen to exit properties.
A lot of these types of properties tend to go to first home buyers, which of course means they are taken off the rental market.
We obviously have a lot of discussions with investor clients about the eventual long-term benefits of continuing to hold on to properties, but for some, the short-term frustration has become too much.
Spring market dynamics
This Spring was fairly standard in terms of transaction numbers and prices. It’s quite nice to see an element of normality, after the frenzied COVID-19 years, which were marked with high levels of uncertainty.
After limited stock throughout the year, auction numbers and supply definitely picked up over Spring.
It peaked at the end of October, where just over 1700 auctions took place. This runs true to form with the last weekend of October typically seeing the strongest supply of the year. This is because it enables a clear run during the peak of Spring, unfettered by the AFL Grand Final or any other school or public holidays that interrupt campaigns.
We saw nine weekends throughout Spring with auction numbers in excess of 1000, and there were another two or three that came very close.
Overall, the quality of stock was relatively good. Sometimes when a lot of stock comes onto the market the quality can thin out quite quickly.
Clearance rates offer a sound barometer for market demand, and sentiment more broadly.
The clearance rate started Spring reasonably strongly, which is quite common coming out of a winter when there’s not a huge amount of supply.
And it did hold up reasonably well through most of September and into the start of October, sitting at around the 70% mark.
But as the supply levels really kicked in mid to late October, we started to see the clearance rates slide, and hover around the 60%, give or take depending on which organisation’s data sets you go by.
That drop was partly due to the increase in supply, but also, demand does tend to drop off, as increasing numbers of buyers make their purchases as we move through Spring.
While others, who haven’t had any luck, at a certain point change their focus to the start of the new year.
In terms of the actual performance of property values, the median house price over the balance of 2023 has risen by just over 5% and the unit prices have risen by as much as 4%.
Given the successive interest rate rises throughout 2023, that’s a reasonably strong result.
Spring property values were particularly robust early in Spring, characterised by strong competition for good quality properties.
We missed out on a number of properties, as people were prepared to pay premiums for homes that weren’t expected.
The market balanced out as Spring went on. We were attuned to the shift in market sentiment, which set us up well from a buying perspective, and provided sound advocacy on the vendor advisory side.
The shift in demand saw an increase in pass-ins, which enabled us to apply our negotiation skills to secure some great results for our clients looking to secure a property.
Take home message
By closely examining the unique characteristics of this Spring, we can gain crucial insights.
These observations not only provide a deeper understanding of current market conditions but also equip us with valuable knowledge to navigate and capitalise on future market cycles effectively, ultimately leading to stronger investment results.