oc | Thursday 24th June

Market Spike or Stepping Stone to a new Peak?

A Pearl for the Earle: 27 Kingsley, Camberwell, under hammer, $1,860,000, 2 bidders. Richard Earle ()

At 6.00 pm on Saturday the James Clearance Rate for Melbourne’s $M+ was 74% on the 38 auctions we covered. The Bidderman, our bidders per auction measurement, was 1.8.

In terms of bidder at auctions, the breakdown was:

◦Ducks (no bidder auctions) – 26%

◦Lone Rangers (1 bidder auctions) – 16%

◦Norms (2-3 bidder auctions) – 32%

◦Volcanoes (4+ bidder auctions) – 26%

A win to the Norms!

Bought Before – As an aside it is interesting to note that seven of the 38 homes we targeted this weekend were bought before, that is around 1 in 5.

Big crowd of 150 at 19 Richardson St, Essendon. Bought after auction for $1,800,000, 2 bidders. Christian Lonzi (Frank Dowling)

Market Spike or Stepping Stone?

There is little doubt the market has been seeing increased activity either side of Easter, and that the strength at the bottom of the $1m plus market is filtering into the $3m+  in noticeable ways.

The question is: is this a price spike, after which we go back to “more-normal” market? Or is this a stepping stone on the way to another more sustained “new level” of price?

Interest rates and the dropping dollar appear to be accentuating the increased demand at the Top End. We have had minor but noticeable increases in enquiry from overseas clients.

Check out our $3m reports next to this Weekly Insight.

The improving Top End is further evidenced by the general improvement in selling agents’ demeanour – as well as  by the fact that the Melbourne Fringes starting to get those top end deals done again.

Remember the “B” Fringe rule.

When you see $M+ sales improving in Balwyn North, Box Hill, Burwood, Bentleigh and Beaumaris you know the market is improving. Why? Because buyers who feel they can no longer afford the Blue Chip suburbs start moving out to these fringe $M+ suburbs. The reverse happens when a market is falling, as fringe buyers move back from these fringe suburbs into the Blue Chip suburbs.

Architect Adam reports “I was talking to Maurice Di Marzio (Hocking Stuart, Balwyn) this week and he told me they had just come off their best month ever in terms of sales. 50 Deepdene Road Balwyn was bought before auction for well over $4m – it was around 7 years old but in very good order internally. They also have had some good off-market sales for new homes in Surrey Hills ($3.3m) and Balwyn North ($1.8m). There is plenty happening in this area right now and there are plenty of buyers – but, according to Maurice, the big problem is not enough stock.,” Adam says.

Behavioural Changes:

From our company’s point of view there are two clear buyer behavioural changes that can occur in this market.

  • Firstly, our client base becomes more antsy and we get some clients wanting to buy anything – even against our advice. They are panicking about being left out of the market, and some end up wanting to leave (which they can if they want to). We believe these kinds of panicky purchases can lead to poor long term financial and/or emotional outcomes.
  • Secondly we start to get beaten more often at hot auctions. After a stellar start to the year we have missed out on half a dozen homes at hot auctions in the last fortnight. Only one of these homes (Ferndale Glen Iris) didn’t go where we reasonably expected it to go. All the auctions were heavily fought over, and quite rightly our clients didn’t want to go there.

Behind Enemy Lines

Good homes are still being bought, and many at acceptable prices. It’s just that in this market you do need to understand there are 3Ps in buying a good property. There is Position and there is the Property itself, but there is also Price and auctions are not necessarily helping you with the third P.

In a spiking or rising market we find the best buyer outcomes occur if you can remain calm. While the third P of Price is harder to manage in either market, what it  really means is that you must maintain a very solid discipline on the other two Ps – Property and Position. In a rising or spiking market  there are strategies that will see you get far better long term emotional and financial outcomes than just buying anything at any price. Even we in this market are saying at times to clients – Mmmmm that’s probably enough for that one.

You really need to understand Price in this market.

Paying $2.8m for a home that the market thinks is worth $2.8m is good buying if you really want the home and it meets your needs. Paying $3.4m for a home when nobody else wanted near that price  is not.

Congrats: Sam Paynter (Hodges) sells 40 Bourneville, East, under hammer, $1,650,000, 5 bidders

Off-markets – Part 2

This week we are continuing with our theme of Off-markets. Well, actually the “sort-of Off-markets” – the homes that have been sold away from the public gaze of an auction.

Stonnington – 3 Case Studies:

4A Mayfield Malvern: This home was on the market quietly late last year and had a nibble at $5m but was not bought. So it went back on the market this year as an Expression of Interest with (Mark Wridgway and Warwick Anderson, RT Edgar) with some solid interest and bought for an amount closer to $5.5m than $5m. It was a good home and we gave it a rating of 756/1000. Reportedly an overseas buyer was involved, possibly an Expat. That is something you will hear more of if the dollar continues to drop – especially at the top end. The agents were very confident at their last open before the Expressions of interest closed (which is always a bad sign for buyers)

Mayfield was always going to sell more strongly on the back of the Haverbrack land sale on the previous Saturday, which put land in this area close to $4,000 per sqm.

Market Change Evidence: Late last year there was some interest at $5m – this year it sold with strong interest for over $5m.

Issues for $3m+ Buyers: EOIs were actually a good way to buy during 2011 and for a lot of 2012. As a buyer you didn’t have to fight a price, because often there wasn’t one. You usually didn’t have to fight too many other buyers either. However, in 2013 you are having to deal with stronger vendors, more buyers and your own emotional insecurity of worrying about missing out. EOIs involve the same process as last year but the game is very different.

7 Devorgilla Toorak: (Phillip French) This sold before auction this week. We were involved but we didn’t buy it, even though we wanted to, but it got too hot, too quickly for our client’s liking a few days before auction, and somebody else bought it. It was a good home and we rated it 704/1000. The price was around $3,400,000.

Market Change Evidence: Have a look at our auction report and rating for No. 17 Devorgilla, which was bought in 2011. It had the same orientation, the same land size, and a pool. The home wasn’t quite as good in terms of WOW but we gave it the same “fundamentals” rating of 711/1000. In a competitive 2011 auction it sold for $2,400,000 – or $1 million less than no.7 did this week.

Issues for $3m+ Buyers: Leading with a pre-auction offer means the issue always relates to you as the lead offerer. Do you go now and risk overpaying what the market is prepared to offer, or do you wait till auction and risk being blown out of the water? If, as we were, you are second in, then you are always on the back foot. Then there is the question of whether you believe the agent or not – if indeed you are actually told. In our case the signs were there that the agent was completely straight. The question for our client was: Do you want to go there? In the end the answer was no.

52 Brunel St Malvern: This new home was sold off-market for, we believe, around $3.5million. We have no issue with the home, but the question is: do you want to spend that sort of money east of Burke Road and outside the Gascoigne?

Market Change Evidence: The price in that position would not have been achievable last year

Issues for $3m+ Buyers: Finding these homes in the first place, understanding the nuances and then managing your emotions to resist buying – given that the lower price was the initial hook  that got you there in the first place.

Agent Survey: In percentage terms, how big is the off-market part of your business and why would you think people would sell off-market in this improving market? Do you think a seller gets more in an off-market situation as opposed to a ‘hot auction’?

Nick Johnstone, Nick Johnstone (Brighton): “About 50 % of our business is accounted for by private treaty. Off-market is a fairly loose term when describing this type of transaction but I describe “off-market” as a sale which is concluded without any marketing, board etc. We have had several very strong off-market results, and it is my firm belief that if the buyer is handled right, the property will achieve a better result than at auction. It is very dependent on the type of property. The top end is certainly more suited as the number of potential serious buyers is significantly less, whereas a 2 bedroom unit in the $600k range is much better suited to a public auction. We had a recent sale in the mid $4m range where we were given a strict mandate by a buyer as to their requirements and we matched them with a property and it was sold for an outstanding price. This would never have been achieved had this property gone to public auction. We have recently set up an off-market register where vendors, due to their requirements for discretion, enable us to procure a buyer on the understanding that all facets of the transaction remain confidential.”

Andrew McCann, Jellis Craig Bennison McKinnon (Armadale): “Off-market sales do not equate to a large percentage of our day to day business (5-10% of transactions per month) however from time to time they can be a successful method of sale for a seller to match a motivated buyer in a no fuss and relatively stress free process. The upside for the client would be privacy and confidentiality as well as the satisfaction of knowing that they have achieved a price they are ultimately happy with. There is always a time and place for this method of sale and in many cases it comes back to the vendor’s motivation (privacy, effort of presentation, no rush etc). Our view is certainly that the market is active for the very good homes at the moment. Prices are rising with pent up demand so a “hot auction” as you put it will always deliver the highest and best price for the owner. If you were looking to sell “off-market” in the current climate you could ultimately be selling yourself short on the upside of what a well-run and competitive auction campaign could deliver.”

Tim Picken, Kay & Burton (): “Off-market sales haven’t been a big part of our sales volume over the last two years, mainly because there has been a gap between vendor and buyer and it has often taken marketing and strong exposure to put the pressure on the market to pay the right price. As the market starts to turn and we are seeing a rise in . off-market sales are starting to transact. There will always be a part of the market that is not comfortable with the public exposure and interference who want a quiet off-market sale. This however may be detrimental to the price, as good homes marketed well presently are exceeding expectations based on historic results. Sometimes, not often, money is not the only driver in the deal however.”

Damian O’Sullivan, (Albert Park): “Given the current strength of the market, we are undeniably seeing more activity in off-market sales this year. I would suggest this would equate to approximately 10-15% of our sales volume. We feel more vendors are contemplating this strategy as a direct result of better market conditions, greater buyer activity and what we feel are increasing prices. Accordingly, some home owners see it as a great opportunity to realise a sale without the commitment and of a marketing campaign. Having said that, we have no doubt that those who are prepared to take the leap of faith by presenting and marketing their property are being particularly well rewarded such has been the auction success we have seen this year to date”

All four main councils were strong:

  • Boroondara 80%
  • Stonnington 83%
  • Bayside 73%
  • Port Phillip 71%

Biggest Auctions:

  • Surrey Hills, 47 Wandsworth Road, Alastair Craig (Jellis Craig), under hammer, $2,250,000, 4 bidders
    More than 140 spectators, including a previous owner who had lived in this home for 37 years..(See More in Auction Reports)
  • Canterbury, 18 Alexandra Avenue, James Tostevin (Marshall White), under hammer, $2,100,000, 2 bidders
    Acknowledged as Australia’s top performing agent at this week’s Australian Real Estate Conference..(See More in Auction Reports)
  • Brighton, 5 Merton Avenue, Campbell Cooney (Hodges), under hammer, $2,080,000, 2 bidders
    With two neighbouring houses for auction within 30 minutes of each other, it was hard to tell which one was attracting the gentle trickle..(See More in Auction Reports)

Biggest Pass Ins:

  • Brighton, 15 Wolseley Grove, passed in, $2,600,000, no bidders
    People gathered in the back yard of this four-bedroom, four-bathroom home, soaking up the rays of the late-autumn sunshine..(See More in Auction Reports)
  • Canterbury, 9 Balwyn Road, passed in, $2,400,000, no bidders
    The entertainment deck overlooking expansive landscaped grounds had been a focal point for the occupants of this tuck-pointed..(See More in Auction Reports)
  • Kew, 8 Cradley Avenue, passed in, $2,225,000, 1 bidder
    From the peaceful sanctuary of this cul-de-sac position a chorus of birdsong from a flock of Currawongs set the tone for the auction..(See More in Auction Reports)

Bidderbuzz:

  • Brighton East, 40 Bourneville Avenue, Sam Paynter (Hodges), under hammer, $1,650,000, 5 bidders
    Sam Paynter cheerfully gathered the crowd of 70 (and their canine friends) onto the park opposite the property of 40 Bourneville..(See More in Auction Reports)
  • Abbotsford, 16 Turner Street, Arch Staver (Nelson Alexander), under hammer, $1,383,000, 4 bidders
    The sun had a special kind of shine this morning, which made the white of this renovated double fronted Victorian glow brightly..(See More in Auction Reports)
  • Fitzroy North, 36 White Street, John Costanzo (Chambers), under hammer, $1,372,000, 4 bidders
    After what I thought was a strong opening bid, auctioneer John Constanzo prodded and probed and was eventually rewarded with four bidders..(See More in Auction Reports)

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