Has Melbourne's top end market gone pear-shaped?

So, has the market gone pear-shaped? That may be what some of you are thinking.

Others will be thinking what the hell are you talking about? The market is fine – it’s rocking along, check out the results this weekend!

For us the market has changed – especially at the top end. But it’s subtle, more in terms of what’s happening behind the scenes, as well as a dip in buyer enthusiasm and bidder depth on the weaker homes.

Numbers through open for inspections (mainly mid-week) appear down on what they were before Easter. But not on all homes. Bidder depth also appears to be easing on some types of homes – in part due to the large amount of stock and in part due to an increasing number of under-bidders who appear to have decided to move from the April furnace to the May sidelines.

Overall Summary of Melbourne’s Million Dollar Plus Auctions 10 May weekend:

• $1 million plus auctions with no bidders: 26%
• $1 million plus auctions with one bidder: 13%
• $1 million plus auctions with two or three bidders: 44%
• $1 million plus auctions with four or more bidders at auction: 17%

Last week we said May was traditionally a month of change and May 2014 is proving to be no different. It’s intriguing.

Mid week, chatting with agent Philippe Batters, I described the market to him as “having the handbrake being gently pulled on”, and he responded with “it feels more like it’s slipped out of gear and into neutral since Easter”.

Why?

Nobody knows for sure but here are the three strongest possibilities

1. It’s May and the pre-Easter market has soaked up the “urgent” buyers and sellers. With more stock and less urgency, some buyers can often have a pause. So this is just a normal May market.
2. Budget talk – it has been quite worrying for some and may have put the market into an “election mode”. At election time, many buyers and sellers at the Top End adopt a wait-and-see approach.
3. This is nothing but a break in the traffic (i.e., it’s temporary), and may well be no more than another platform (a leveling time) in the rising price staircase that we have been experiencing since October 2012. After all, we thought the market was turning a bit in March. But then Bang! April was a near record month.

So what does this all mean?

For us it’s still business as usual – just a different tone. A market is always changing.

However for some buyers, no matter what is said, it means an “excuse” to do nothing. They become “maybe buyers” and “maybe sellers”.

If you’re a “maybe buyer” you will keep looking, but you won’t buy. You’ll bid but not quite enough to buy. You’ll go to opens, but you won’t find the right home.

If you’re a “maybe seller” you will put off making that call to the agent for an appraisal. If you’ve already done the appraisal, you’ll decide to wait and not go to market till spring, or maybe you will put it quietly on the off-market but you won’t sell. If you are a seller currently on the market and you want an above-average high price (e.g. pre-Easter) then you will be at an increased risk of pass-in (unless you’re selling an A grader).

But what if you can’t afford to sit on the fence and do nothing? What if you realise your children aren’t going to stop growing and you really need a bigger home.

Best Advice

1. Understand we are not seeing the market in a hole. We are seeing the beginnings of a patchy market, which is often a precursor to a market change – but we also saw that in March and the market bounced back in April.
   
   
2. Don’t panic – understand that markets go up and down. Even in the GFC the really good properties had only minor haircuts, and any “lost money” was well and truly recovered within a couple of years (on the good ones, anyway). So stick to your longer term plans and understand what quality is.
   
   
3. Realise that on A-graders you will still have to compete against locals who want quality, as well as Chinese buyers from overseas. By this we mean that even if demand has halved, the good properties that pre-Easter had six bidders will still have three bidders, and the market will still produce a strong result.
   
   
4. Realise that the subtle changes to the market are more apparent and more relevant at the top end i.e., $3 million plus more so than the $1 million plus homes. Because there are generally fewer bidders at the top end, a decline in demand has more impact - in that, while there may have been three bidders pre-Easter, there may now be just one or two – and that’s when price differentials occur.
   
   
5. Understand that B- and C-graders will have less bidders, and in some cases no other bidders. Which means you may end up paying more than if you had adopted a bold bidding strategy only.
   
   
6. Understand that when markets drop, stock tends to dry up. When you combine that with the coming winter lull, you may want to think about adopting a wait-and-see short term strategy.
   However, that inaction may mean you will have no choice until late in the year or even early next year. Therefore you will have accidentally created a long term wait-and-see strategy. Can you wait?
   
   
7. Adopting a wait and see approach usually leads to one of three things:

• You lose your patience and end up buying something out of desperation rather than based on logic.
• You miss this cycle and buy in the next up cycle instead – possibly paying more than now.
• You miss the opportunity forever to trade up.

When markets go off, the top end comes back to the pack and trading up becomes a lot more sensible. So a leveling or easing market is a plus for growing families.

Our recommendation is business as usual. Which means:

1. Acknowledge your confidence level change and manage it rather than react to it.
2. Ask a few more questions rather than just assume it’s going to fly out of the blocks;
3. Don’t be quite as quick to jump in with a big bold knockout bid;
4. But above all try and remember the longer term outcomes you are trying to achieve. If it’s a “goodie” we would still be recommending to put your hand up, as life is short.

So are you about finding a good long term family home while there is still a lot of choice but a bit of uncertainty? Or are you are about trying to deal with your uncertainty and not much else?