While every Spring sees Melbourne’s market activity intensify, each year’s selling season has particular dynamics shaping the state of play between buyers and sellers.
I spoke to one of Melbourne’s leading real estate agents, Stuart Evans, Director of Marshall White in Boroondara about the shifts and trends impacting Melbourne’s 2023 Spring market.
Interest rates
Jarrod
There’s no denying that the lead-up to Spring has been marked by uncertainty. Interest rates look to have peaked, but remain significantly higher than last Spring. Given your primary engagement with the Boroondara family home market in the eastern suburbs of Melbourne, where properties range from around $2 million to over $10 million, how have these interest rate changes over the past 18 months influenced the market?
Stuart
It hasn’t impacted us too negatively. Definitely, there are some buyers who’ve become more cautious. This is most apparent in competitive auctions. When bids exceed the reserve, buyers tend to bid with a bit more caution, but they do keep bidding. During the halcyon days with interest rates at 2%, post-COVID, we saw buyers often exceeding their perceived limits by $50,000, $100,000, or even $200,000. They appeared confident about managing repayments given the low rates. That’s eased back a bit now.
But as residents of Boroondara, we’ve experienced significant capital growth, and this has bolstered our equity. In challenging times, it means we have the flexibility to approach banks for refinancing or make necessary financial adjustments.
Moreover, many possess investment properties. Selling these can be an avenue to address non-tax deductible debt on primary residences, alleviating financial strain. So, those residing in Boroondara may have positioned themselves somewhat more favourably compared to other municipalities, primarily due to the benefits of capital growth and leveraging that equity for further real estate investments.
Jarrod
How have you seen this year’s Spring market so far?
Stuart
Typically, we consider August as the early onset of the selling season, post the school holidays of June and July. This is when we initiate conversations with vendors about listing for an early Spring sale. Essentially, our Spring selling season spans from mid-August to mid-December.
However, from mid-August until the September school holidays, the stock was notably scarce. I believe this played a role in securing favourable results for vendors. Those who decided to list early certainly reaped the benefits of limited supply and heightened demand.
Now that the school holidays have passed, we’re observing a substantial increase in stock numbers. November 18th, November 25th, and December 2nd are set to be significant weekends for the Marshall White Group. We’re projecting over 100 auctions across these three consecutive weekends. Moreover, December 9th might very well be another ‘Super Saturday’.
The ‘two paced’ market
Jarrod
From a buyer’s perspective, the clearance rate remains a good indicator. It was predictably strong earlier in the year due to the lower supply. However, with supply increasing, it’s true resilience will likely be tested in the coming weeks.
As buyer advocates, in our office we might be a bit skewed since we focus primarily on premium properties, filtering out secondary ones. From our lens, the market seems quite active and competitive. But you deal with a broader range, from top-notch to those with compromises. Do you believe there’s sufficient depth in the current buying market?
Stuart
There’s a distinct split in the property market. Premium properties, freshly renovated within the past 5 to 6 years, are in demand. The rising material costs and builder shortage has made these turnkey homes particularly attractive to families, and they’ve performed exceptionally well in the past year.
In contrast, the ‘renovators’ delight’ market faced challenges six to nine months ago, as finding the right buyer at the desired price was challenging. However, the scenario is shifting. While materials are becoming more available, many have paused renovation plans due to a 30 to 40% surge in costs.
Consequently, more people are looking to purchase completed homes. This change means builders have more opportunities for fresh projects, and there’s been an uptick in activity for homes needing renovation over the last six months.
Clearance rates
Jarrod
With the clearance rate hovering around the 70% mark, it’s generally what we would consider to be bordering on a balanced to seller’s market isn’t it?
Stuart
Yes, if we can offer seven out of 10 of our vendors the opportunity to sell on auction day, it’s a strong indicator of a robust market.
Observing the gap, as we look back over the year, we notice that the auction success rate for top-end, beautifully finished and renovated family homes probably stood around 80 to 85%.
In contrast, the unrenovated, more compromised second-tier properties, especially those on busier roads, likely hovered around 60 to 65%. I believe that this gap has somewhat narrowed.
Underperformers
Jarrod
Which properties aren’t performing as well? Which ones are you finding more challenging to sell currently?
Stuart
This Spring seems to be a very price-sensitive market. If buyers don’t perceive value in a high-end, exquisitely finished home, they often won’t engage.
By ‘engage’, I mean they won’t even physically walk through the home unless they sense a fair market value is available.
Essentially, if a property is priced slightly higher than where comparable sales place it, many buyers won’t compete for those homes.
Strong performers
Jarrod
What is the most competitive in the general market? What are people really sourcing and chasing at the moment?
Stuart
A period home that not only boasts an authentic facade, but also features a stunning contemporary, architecturally-designed extension, remains the most sought after. Particulary,
I believe the market between $2.5 to $4.5 million is quite active.
This is because there’s a substantial pool of buyers with that budget. In Melbourne over the past 15 years, single-fronted terraces have experienced significant growth. This growth has enabled those homeowners to upgrade from a property valued between one and a half to two and a half million to a double-fronted, beautifully renovated home in the $3 to $4 million range.
Changing buyer profiles
Jarrod
Have you noticed a shift in buyer profiles? Are there more upsizers transitioning to downsizers? And, while your market might not primarily cater to investors, are there signs of overseas investors re-engaging after being absent for some time?
Stuart
Certainly, over the past six months, we’ve observed the overseas buyer making a return. Conversations with our international division suggest a strong desire among these buyers to relocate to Australia.
They’re particularly attracted to the freehold title, the spacious 678-1000 square metre allotments, and the flexibility to rebuild at any time. This preference has seen a noticeable uptick in the last six months.
On another note, downsizers seem to have recognised the current stability of the market. If they’ve been contemplating a move, now feels opportune. This stability provides downsizers with the confidence to transition from their $4-5 million family homes to more manageable, lower-maintenance homes in the $2.5 million range. Fortunately, there’s a good selection of these properties currently being developed in Boroondara.