Melbourne market yet to reach tipping point: Wakelin Property Advisory

Melbourne market yet to reach tipping point: Wakelin Property Advisory
Jennifer DukeDecember 7, 2020

Melbourne’s property market has yet to peak with strong momentum to keep pushing property prices higher, according to director of Wakelin Property Advisory, Paul Nugent.

While robust auction clearance rates and price growth are expected to continue, supply remains the most important factor when looking at the market’s current strength.

“To date, the growth in supply over 2014 has been steady but not sufficient to outweigh strong demand,” Nugent said.

“But there is always the possibility of a surge in supply in November and early December, as can happen in Melbourne. Often, agents, seeking to avoid the sporting events of early spring, back-fill the calendar with auctions. We’re getting a taster of this phenomenon this weekend, when 1,800 auctions have been scheduled the week before the Flemington Racing Carnival kicks off.”

He noted that if auction clearance rates do weaken, it’s worth considering whether it is a result of strong supply, rather than weak demand.

“The momentum in the market is strong, which may upset those looking for an instant slump in response to recent commentary from the Reserve Bank about the sustainability of house prices,” he said.

“Whilst some may wish for the market to immediately bend to this narrative, the power of Reserve Bank jawboning has been overstated … Its impact at best is short-lived and, each time it occurs, diminishing.  Jawboning may give pause for thought, but after a while it comes to sound like Cry Wolf. Participants in the property market will continue to buy and sell property.”

Nugent noted that the current clearance rate has seen 70% to 75% of auctions remaining successful for over a year.

“That is an extraordinary run when a clearance rate in the 60% has historically represented a balanced, healthy market. So I’m bemused by comments we hear when the clearance rate dips into the low 70% or high 60% that the market is struggling. People with short memories should stop treating a 70% plus clearance rate as the new normal,” he said.

The challenge coming for the market will be an upswing in interest rates.

“The property market will respond to actions, not words. It may only take a relatively modest increase – say 0.5% to 0.75% – to shut off price growth for six to 12 months, but it will be a tangible policy action rather than a threat of one that will deliver that outcome.”

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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