Real estate Australia | Get latest real estate trends in market

select an area

> home loan calculator

Market News

For more articles, please visit the Market News Archive

great ocean report - may 2010

25th May, 2010

great ocean report – May 2010

It is fair to say that the Australian property market has had an amazing run over the past 12 months the strength of which defied most economists and established industry commentators.

If we use the Melbourne median house price as a guide we can see that it has risen 29.5% from the end of the March quarter in 2009 ($405000) to the end of the March quarter 2010 ($524500). The peak of activity being in the December quarter of 2009.

Everything is easy in hindsight to review but this property market was actually not that difficult to predict. The increase in dollar amounts of the median house price is always difficult to predict but the increase in activity is not. This is simply because the property market always comes back to one simple rule of economics – supply and demand and the sentiment (fear and greed) attached
to it.

One very interesting phenomenon that is occurring in the Australian property market is that the cycles are getting shorter. If we look back to after the late 1980’s property boom when the recession hit around 1990 the property market stayed flat for about 7 years. Then we had a strong period from 1997 to 2003 (values in our coastal market roughly tripled in this period) which ended in November 2003. The next buoyant period in the property market was in 2007 (3 years between peaks). Then the GFC loomed and the stock market plummeted in 2008. Interest rates dropped and the property market started looking very attractive resulting in a very positive 2009 (2 years between peaks). And now we find ourselves in 2010.

Let’s now look back at these cycles and see how by applying the rules of supply and demand and the sentiment attached to this we can predict what a property market will do. Let’s first agree that everyone does what everyone else does. As much as we all like to think of ourselves as individuals most of us follow the herd. The stock market is the most fluid and volatile example of this.

I will go back to 2003 for this illustration. In a buoyant market generally supply increases because property owners take the opportunity to sell their property at the increased price being offered by increased demand from buyers. After a strong six year run in November 2003 two things happened at once that reduced demand. Interest rates rose to a level that took residential property investors out of the market. The returns being offered were just not attractive enough anymore with increased finance costs. Basically negative gearing lost its luster. Also the government changed the auction rules to outlaw dummy bidding. This meant there was a lot of single bidder or no bidder auctions. This was a very public display of sentiment that weighed heavily on the property market. This in turn reduced supply in 2004-2005 because people tend not to sell when they do not have to. The property market was steady rather than terrible but it was the booming stock market that had investor’s attention (sentiment).

At the start of 2006 the Australian property market started a new run. Interest rates had hardly moved since December 2003 the strong stock market was providing both positive sentiment and profits. Financial advisers were advising their clients to diversify by taking advantage of the flat property market with these profits and this started increased demand for property. Given that everyone does what everyone else does the property market started to pick up speed and despite rising interest rates saw a stellar run through to the end of 2007. Increased demand saw increased supply as prices rose. Then the GFC hit very early in 2008 with the Australian Stock market falling approximately 2000 points over the next six months. This severely dinted sentiment and the whole world put whatever they were doing on hold which affected both supply and demand. The property market in the USA was in freefall and the Australian media was doing its best to scare the hell out of everyone (remember Steve Keen!).

By 2009 it was evident that Australia had a separate set of principles in play to the rest of the world. The government was visible in creating economic stimulus and the Reserve Bank had drastically cut back interest rates. Unemployment was not dramatically rising and most Australians found themselves with more disposable income than they had expected. Positive sentiment was increasing and with a flat property market cheap interest rates more cash and no allure from the stock market property looked attractive.

There were also some other factors that underwrote the Australian property market and increased demand from strong immigration was one of them. Approximately 1800 new people per week were (and still are) arriving in Melbourne and they need somewhere to live. Add to this the government relaxing the law on the type of property that temporary visa holders could buy adding an extra layer of buyers especially from China (some of the most spectacular individual results in 2009 and 2010 can be directly attributed to these buyers). As 2009 wore on and with this strong base in place everyone decided to join in and demand increased. Early in 2009 supply was tight but the volumes increased as the year wore on as property owners as we have already mentioned are more likely to sell in a buoyant market.

So here we are in 2010. The Melbourne metropolitan market has seen an amazing run but the gloss has come off in the past few weeks from its highs of the December quarter last year. It had to really because the rate of appreciation was just not sustainable. Our observation is that it will probably return to more sustainable levels. Interest rates have risen to temper the appetite of some sectors of the market and the stock market is providing some negative sentiment at present which also makes people nervous. Overall we still have a general under supply of housing to service the demand for our growing population and this will keep us in good stead for some time to come. We think the peaks and troughs will continue to be short and shallow because of this overall lack of supply.

How does this all affect coastal property specifically? As most of the buyers come from Melbourne positive or negative sentiment directly affects the coastal property market particularly so because they are usually discretionary buys. We have very limited supply (only about 8000 properties in the towns of Anglesea Aireys Inlet and Lorne all together) with little expansion possible. Yet we have a capital city of 4 million people rising to 5 million over the next 20 years 90 minutes away with no traffic lights between us. We think we can safely assume demand is assured but like any property market at levels subject to the ebb and flow of the sentiment of the day. At present we have the lowest stock levels we have ever seen after very consistent demand over the past year.

great ocean report - march 2010

31st March, 2010

A summer reflection.

Is it the end of March already? I’m sure I am not the only one looking at the calendar in disbelief but yes it is and it is a good time to reflect on our summer season to see how coastal property has fared.

Overall the market has been very active which is in line with most other Australian property markets over the past six months. However there have been a few unique factors in place that is different to previous years which have to be taken into account when trying to assess the performance of the coastal property market.

Firstly the common denominator seems to be a shortage of saleable stock. When I say saleable stock I mean properties that are available in the price ranges that appeal to the broadest part of the buying demographic usually this is around the median price range for each area. Also every area is a bit different depending on what sort of demographic that they attract. The Bellarine Peninsula and Torquay attract a mix of both permanent and lifestyle buyers whereas further down the Great Ocean Road we tend to attract more lifestyle buyers.

I say lifestyle rather than holiday house buyers now because since the Geelong Ring Road opened we have seen a lot of baby boomers wanting to set up a “second base” on the coast that they intend to use on a more regular basis rather than just the traditional holiday house owner. Their perception is that they do not want to fully retire but work less and more flexibly in the future with a “long weekend every weekend” scenario. Many of them have been workaholics that are now looking for that elusive balanced lifestyle.

This will continue to keep stock tight especially in places like Aireys Inlet and Anglesea where access to Melbourne is so easy out of the peak periods. If existing property owners are using their properties they are less likely to sell them. By far the biggest reason people sell in these towns is that they are not using their properties and they can use the money somewhere else. With the prices having grown substantially over the past decade owners who are not using their properties often overlook the emotion in favour of cash in the bank. For those property owners now is a good time to be considering selling.

On the flip side of this we are not seeing the frenzy that Melbourne is seeing. The main reason for this is the lack of overseas buyers on the coast especially Asian buyers who have been providing a solid foundation for the metropolitan market for almost the past 18 months. Since the foreign investment laws were relaxed as part of the stimulus package these overseas buyers have been a large percentage of the buying demographic in Melbourne particularly in the first half of 2009 when no one else was buying. As the market improved through 2009 the percentages dropped back as local buyers joined in but they are still very evident in the blue chip suburbs today.

This factor has distorted our reading of how the metropolitan property market and coastal property markets relate in performance. Traditionally whatever happened in the inner eastern suburbs of Melbourne would usually directly flow onto the lifestyle coastal property market as most of the buyers for lifestyle property would come from these areas. This may still be the case it is just that their demographic has now changed and we are not seeing any part of the new members of that demographic. There is no doubt however that the overall performance of the metropolitan market has assisted the coastal market.

A more random factor that we always notice is that coastal lifestyle property buyers are sun loving beings. They are very active when the sun is out and less active when it is not. There was a great example of this over this summer. The first two weeks of the holiday period from Boxing Day was almost faultless weather everyone was beaming. This motivated many to move toward purchasing a coastal property and over the next month many did. We then got into a six week cycle of reasonably poor weather on the weekends and good weather during mid week. Towards the end of this six week cycle we noticed the level of general enquiry really dropping off. Properties were still moving but the emotional buyers were dropping off. These are buyers who come down have a great time on the beach and then walk into our office towards the end of the day exclaiming their new found love of coastal life and wanting a piece of it. If they do not have that initial experience their emotional response is simply not that strong.

Looking forward it will be an interesting winter to watch this year on the coast in terms of the property market. We suspect that with the improved access from Melbourne that our market will become less seasonal than it has been in previous years. Even though the Geelong Ring Road opened in June last year many did not experience it until much later. This year all regular visitors know about it and we certainly expect more to use it more often.

If you are coming down for Easter and want to discuss your real estate needs we would welcome the opportunity to speak with you. The weather is looking great and we hope you have a terrific time while you are here. If we can be of any assistance please call us on 5220 0000 or the details below.

See you on the beach.

great ocean report - january 2010

28th January, 2010

As we finish the school holiday period for the 09/10 summer it is as good a time as any to take a look at what has been happening in the coastal property market this season. In short there is a lot going on.

There have been a lot of sales both on and off market with the last two weeks of January being especially buoyant. There are a lot of factors driving this and when we look at them closely it is not difficult to see why there is a cumulative effect in the market towards the end of the holiday season. Some factors are very fundamental others are pure emotion.

Firstly we came into Summer with the strongest lead from the Melbourne metropolitan market that we have ever seen. In the December quarter the median house price in Melbourne surged 15% to $540500. It was the largest increase in the median house price since the REIV started keeping quarterly records. Given that many coastal property purchases are fuelled by the equity in the purchaser’s prime residence usually in Melbourne this is a strong confidence builder. Just the sentiment from seeing your prime residence’s value soar is enough for some to bring out the cheque book and consider another property purchase especially in the absence of confident investment alternatives.

Secondly it was the first Summer since the Geelong Ring Road had been opened and as we have mentioned in previous Great Ocean Reports what this does is add another layer of justification to having a coastal residence. Every buyer tends to go through an emotional attachment stage (we love the area and the lifestyle) and then goes through the justification stage (should we spend the money). The perception at point of sale is that because the area is so easy to access the property will get used on a regular basis and therefore the purchase can be justified. On the flip side for existing property owners it allows them to use the properties more often and therefore if they are using them they are unlikely to sell them.

This has seen stock levels plummet to the lowest levels for some time so for property owners thinking of selling the timing could not be better.

Other factors are less fundamental but are equally as powerful in the mind of a buyer. The first two weeks of the Xmas holidays this year was some of the best weather ever experienced for that time of year. I was personally involved with the Nipper program at the Fairhaven SLSC and the mood on the beach was nothing short of jubilant. This is the time of year where people emotionally reconnect with the coast and it is obviously the time when the majority of people take holidays. Coastal property purchases are certainly in the first instance emotional decisions that the buyer tries their best to justify with logic. Having access to some of the best beaches in the world in brilliant weather always triggers strong emotional responses. We know because during this time most of our Property Guides fly out the door between 4 and 5pm in the afternoon - after a great day on the beach.

If we look at what has been selling we can see results in all price ranges. The strongest demand has been in the preferred areas within the coastal towns in the $500000-$900000 price ranges. Interestingly this is also the price range where Melbourne homes have seen their median prices increase the most. Land has been slower because lifestyle buyers in the main would prefer not to go through the building process if they can avoid it. However we know from past experience that if the houses that are available are not appealing and buyers are committed to getting a foot in the market then land will be considered.

Looking forward it is difficult to see in the medium term what will slow the property market down (apart from some unforeseen random occurance). Population growth in Melbourne will remain strong and therefore the supply imbalance will continue interest rates will increase but overall will be restrained by factors in the world economy and unemployment will stay low. These are strong confidence building factors on the back of the news that Australia escaped recession.

Specifically for the coastal market it will really be about stock levels. Where supply is tight (such as Aireys Inlet and Fairhaven right now) we will start to see more auctions as competition increases for well located properties especially around the median price points. Where supply is higher such as Torquay the market will be positive but steady. The whole of the Great Ocean Road area has benefited from the Geelong Ring Road and this will continue as they finish the final stages over the next year providing seamless access between the coast and its main buying demographic.

We hope that you have found this report informative and if we can ever be of assistance in any real estate matter please do not hesitate to call.

Designed and developed by Outsourcing2india.com