Which way are things going? South Yarra 32-34 Park St: David Colbran and Warwick Anderson of RT Edgar: Passed In: $3,903,000: Bought Afterwards: 4 bidders

It’s 6pm Saturday and the James million-dollar-plus Clearance Rate on the 41 auctions we attended today was 61%.

Bidderman is 1.7 and it seems to have found a momentary level of some strength on large numbers of auctions.

We monitored 174 $million sales across 56 Melbourne suburbs.

Overall Clearance rate is 60% for those 174 auctions and in line with our James clearance rates – confirming again our James Clearance rate is an accurate measure of $Million Melbourne.

Considering the large amount on offer today and two of the next three weeks, it was a solid result for the market, albeit on falling clearance rates.

Summary Clearance Rates

• Bayside – 26 monitored – 12 bought – 46% clearance rate
• Boroondara – 46 monitored – 32 bought – 70% clearance rate
• Glen Eira – 18 monitored – 10 bought – 55% clearance rate
• Inner Melbourne (Yarra) – 11 monitored – 8 bought – 73% clearance rate
• Northern Melbourne – 22 monitored – 13 bought – 59% clearance rate
• Port Phillip – 22 monitored – 7 bought – 32% clearance rate
• Stonnington – 26 monitored – 18 bought – 69% clearance rate

Highlights

• Only 5% were not reported which shows a high degree of accuracy for clearance rates
• Increasing numbers of undisclosed results – maybe privacy or less than stellar numbers
• It is Port Phillip’s turn to not fire under the auction system
• Stonnington was surprisingly strong with Park St South Yarra (Warwick Anderson of RT Edgar) going passed $3,900,000 on multiple bidding and 81 Clendon Road Toorak (Gerald Delany of Kay and Burton) selling post auction north of $7,350,000 and 64 Burke Road Malvern East (Iain Carmichael of Benmac) selling before for 3,320,000 or $1366 per sqm for main road land. We think a number of Toorak and South Yarra vendors have wised up to the mood change and as a result clearance rates are improving.

In some segments, the market has dropped an estimated 5% in the past three weeks; in other segments, not at all. Fringe positioned, poor quality and hard to sell properties we feel could be as much as 10% off what they may have achieved in a frenzied April auction. This is of course opinion and hard to substantiate; but it is what we believe.

But our blanket headline is not 5%-10% price drop; it is mood change for all markets and some markets are patchy and some homes have experienced a drop in price.

Before we are yelled down by the lobbyists, let’s be specific.

First, there are several markets going quite well (for sellers), thank you very much.

$4 million-plus market
Evidence is emerging that this market, which we felt was in trouble a fortnight ago, is not as patchy as it seemed to us – and actually has some strength. Our correction: A more accurate read from us would have been that the auction system itself is frosty at this price level but there is activity outside the auction system (private sale, off market and expressions of interest). Michael Gibson of Kay and Burton agrees this is an accurate statement. He implied his company wouldn’t be selling $6 million-plus homes in Canterbury, Hawthorn; Scotch Hill; Grace Park and Flinders in the last month (and today at 81 Clendon Road Toorak, post-auction after a vendor bid of $7.35 million) if the $4 million and above market was declining substantially.

Note: Back in the GFC days during one six-month period (late 2008 – early 2009) at this same $6 million-plus price level, there were only nine recorded home sales in total (two in Brighton, one in Balwyn; and six in Toorak) for all real estate agencies in all of Melbourne.

$1 million – $1.75 million market in inner Melbourne
While there is definitely less bidder depth than a month ago, buyers may notice little change in end results on good properties going forward as there was such great depth pre-Easter. In fact, we were at an auction in Clarendon St Armadale (Madeline Kennedy and Andrew Hayne of Marshall White) where a nice little Edwardian single-fronted was bought for just over $1.2 million, and its twin sold earlier this month for $50,000 less. The $1 million to $1.75 million market is not seeing widespread price drops; despite less bidders per auction.

Shall we stop building the drama? Where do we feel the market has dropped?

$2 million to $4 million market
Is where the possible gains in 2010 have evaporated for a number (but not all) homes. On some good $3 million homes, we feel that the market view could be $100,000 to $200,000 less than Anzac Day and on poorer homes the drop feels more dramatic.

On what basis do we make such a claim? What about such and such, which went for $150,000 over reserve?

Clearance rates seem weaker at this price level; although today 10 from the 16 we witnessed in the $2 million to $4 million mark sold and that’s 62%. We feel the easing has been mainly in this market, but we have no evidence to suggest anything more than light price drops on some good homes.

Look at three Hawthorn homes we have been involved in, in the $3 to $4 million market in May 2010.

All three of these homes we assessed at $3.3 million under strong competition. All three of these auctioned homes had supporting evidence and independent outside agent opinion matching our $3.3 million assessments.

Yet the results were different (around $3.1 million on two occasions and $3.46 million on the other occasion). This had nothing to do with the agent (despite what their opposition may say). It may, of course, be our poor assessment of two but, if you assume we have some level of competence (others may argue), then it does hopefully give an insight into what we think is happening in the $2 to $4 million market in May 2010.

INCONSISTENT RESULTS and MINOR PRICE DROPS FOR GOOD HOMES

What does this mean for buyers going forward?

Opportunity!

There are $2 million to $4 million sellers out there that have to sell as they have bought and do not have the luxury of holding multiple homes. Interest rates are rising and business, as evidenced by the stock market index, is not as rosy as April.

Even those sellers that do not press the panic button may still be of a mind that things may not improve in their selling horizon and will, if they are listening to their selling agent, be more inclined to deal on a sensible offer rather than wait till the uninformed or ridiculous one arrives (which, increasingly from Anzac Day, is not happening).

A home that in April you would have paid $2.5 million for could now available to you for $2.3 million if:

1)      You know where to look

2)      You look

3)      You have some luck

4)      You put your hand up and then in your pocket.

Some important riders on our $2 million to $4 million blanket statement:

1)      It still needs to be the right home for you.

2)      It still needs to be a good home. Low land content, poor floor plans and badly positioned homes can become better in price but they never become good land content (above average growth), good floor plans (without serious money) or better positioned homes.

3)      Not all homes are adhering to our price drop assertion.

Overall Market Summary

At this stage, we have no feeling that the market corrections are anything more than normal market corrections. Market corrections come from market imbalances and the $2 million to $4 million property market has, in our opinion, been out of balance in May. Other markets are experiencing less bidder depth but not the imbalance and it’s not showing as much on the scoreboard.

While in all markets demand per auction has been steadily falling as evidenced by our Bidderman graph below; that is not necessarily as sinister as it may seem if you look at the supply graphs chart we keep on new million-dollar-plus stock to the market (graph 2). Those charts confirm what agents have been claiming – record months of auctions etc. Look at the up-swing in new stock (and we keep both on-market and off-market data) from 30 to 60 days ago. Big increases!

To some extent, these large increases in stock are the obvious reason why demand per home (Bidderman) has fallen; however, what is different to March and more in line with a normal market, is that the May 2010 market has not been robust enough to absorb all of this stock increase, particularly in the $2 million to $4 million mark. We have seen some seller stress for the first time since mid 2009. In addition the rest of the market seems to be leveling which can’t be a bad thing for all sides of the market.

Note: The above graph (2), implying lower stock numbers coming in over the last few days, may simply be a data entry timing issue from us – the guaranteed accurate stock level indicators for us are the 30 days and over figures and these are unseasonally high.

Three-month market outlook

$1 million to $1.75 million buyers.
There needs to be a big reduction in buyer overhang and a greater mood change resulting in an increased number of pass-ins before many good homes will reduce in price.

We think the current mood change and bidder depth has resulted in a leveling of price. Poorly supported properties are dropping in price.

As another aside there are an increasing number of pre-auction and off-market opportunities even at this level. By example, we bought a ripper little off-market one in Elwood last week at this price level. Good home – we were surprised it was offered as an off market (and, please, we don’t mean that negatively for either party).

$2 million to $4 million buyers
This is the most exciting and unpredictable market at present. Buyers, you need to turn up and keep turning up, because the opportunities to buy good homes are here and may not remain for long as you may think. The longer term big picture still shows population and migration pressures conducive to price increases.

At this level we suggest you need:

• Patience because some good homes are still selling very well.
• To cover a wider number of possibilities. There are off-markets and fringe properties that you are not aware of that are selling.
• To do your due diligence in two ways. Emotionally, is it right for you, and, importantly, is it for sale at $2.85 million or do you have to pay $3.15 million (financially).
• Advice. We’re biased. But with opportunities comes a number of decisions and a “no” decision can be just as harmful as a bad “yes” decision. All good decisions are either lucky or informed ones and it takes a lot of work to be informed for all decisions. So are you lucky or do you want to be informed? Possibly consider engaging a competent and ethical buyer agent experienced at this level to assist you.

Of course the market could also worsen (for sellers) but to assume that this market will continue to deteriorate after the forced sellers have gone is not a given; it is a guess. Going forward a number of $3 million owners have discretion and rather than put their home on the market or be in a forced sale they can renovate or hibernate. This will mean reduced choice for buyers which can start an upward price cycle on low quality stock – a buyers lament.

$4 million-plus buyers:
The proof is in the pudding. Sales at this level are up, surprising all of us. So demand is there (for now) and, while this level of home never attracts the bidder depth of further down the food chain, it also has fewer forced sellers than say the sub-million market unless business hits the wall. We don’t have as clear a take on this market as we thought we had, so, we’re keeping our powder dry and no longer passing  judgment until there is some more water under the bridge (love those clichés).

Buy happy

Mal

The Big Guns failed to fire at auction but didn't miss their target on the reload; with a post auction result in excess of the $7,350,000 Vendor Bid Pass-In. No bidders: Kay and Burton's Heavy Duty Gerald Delany, Mike Gibson and Ross Savas presiding.