"With little on the short-term horizon to suggest a significant shift in demand from investors and home buyers, supply looms as the main catalyst for property price movements."
Residential property vendors expecting a big spring buyer turnout could be in for a letdown
It’s a time-honoured property marketing technique: encourage vendors to sell during spring because their gardens are in full bloom, the weather is warmer and buyers are out in full force – emotionally responsive and ready to spend big to secure their dream properties.
In reality, a spring marketing campaign could be a somewhat less lucrative endeavour.
Since the mid-1980s, the popularity of residential property as an investment vehicle, rather than simply a lifestyle vehicle, has grown significantly.
Today, residential property is far more widely accepted and visible as an investment asset.
Investors don’t make purchasing decisions based on the same degree of emotion as home buyers. They buy based on personal financial considerations and an assessment of market conditions. This means they are no more likely to enter the market to buy during spring than at any other time.
On the other side of the equation, home buyers are no more likely than investors to turn out in droves during spring. At this time of year, the market is interrupted with school holidays and major events like football grand finals and racing carnivals. Pre-occupied with family and social activities, the home buying public is less inclined to participate in the property market.
In short, if you expect that investors and home buyers will be out in full force and waiting to secure your property simply because it’s spring, you could be in for a letdown.
Oversupply could subdue prices this spring
With little on the short-term horizon to suggest a significant shift in demand from investors and home buyers, supply looms as the main catalyst for property price movements throughout the rest of 2012.
Figures from the Real Estate Institute of Victoria (REIV) show there have been significantly fewer residential property transactions in 2012 than in previous years. There were 41,019 transactions across Melbourne between January 1 and September 3. This represents falls of 8%, 19% and 16% compared with the same period in 2011, 2010 and 2009 respectively. Preliminary data from the Real Estate Institute of Australia suggest similar trends in Sydney and Brisbane.
At the same time, auction clearance rates have remained steady at 61% since 2011. This suggests vendors are deferring selling their properties in line with falling buyer demand.
The pattern of diminishing property transactions suggests there could be a growing build-up of deferred sales. The decision to sell a property, whether it is motivated by personal need, personal preference, financial factors or a combination of the three, is something that can only be put off for so long.
If vendors adhere to the market cliché that spring is the best time to sell, the resulting surge in supply this spring could be greater than the standard seasonal upswing. The effect of oversupply on what is already a fragile and patchy market could spark a fall in prices that would be difficult to arrest.
The wrong kind of competition
Vendors invest in marketing to draw attention to their properties in the hope that it will generate competition between buyers and increase the sale price. The combined effect of limited buyer demand and a surge in supply this spring would increase competition between vendors instead of buyers. This would reduce auction clearance rates, prolong marketing periods and ultimately, drive down prices.
What are the alternatives?
As a vendor, one of your primary considerations should be: “Will this time of year bring the most favourable price for my asset?” If the answer is no, and your individual circumstances mean you’re not under pressure to sell in the next three months, it may be worth considering deferring until a time when there are fewer properties available than is often the case in spring.
Xavier Perronnet is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.