Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.

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Mark Armstrong

26 March 2013

Melbourne property market bounces back to 2010 levels: Mark Armstrong

Melbourne property market bounces back to 2010 levels: Mark Armstrong

The Melbourne property market is like an incoming tide. It ebbs and flows on the waves of confidence and buyer demand. In some cases the property market slips backwards but it always seems to get back to where it once was.

Over the last couple of years the value of many properties have slipped back by 5% to 10% but we are now seeing the market take up that slack very quickly.

For example, in November 2010 a three-bedroom villa unit went to auction at 3/15 Lisson Grove, Hawthorn (pictured below).

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At the time, the market was coming to the end of a two-year strong growth phase, but even in such a strong market nobody expected the result that was achieved.

I remember seeing a shocked crowd of onlookers when the property sold for $1.26 million. This result set a new bar for this style of property in Hawthorn and took many people by surprise.

Scarcely six months after this sale the Melbourne market had fallen to its knees and the thought of achieving a similar result again seemed impossible.

However, last weekend a property (pictured below) in a very similar condition and in the same development went under the hammer.

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Leading into the auction the agent expected the property to sell in excess of $900,000 and had a reserve around $1 million. The massive result achieved a couple of years earlier was not on the cards as far as the vendor was concerned because ‘that was a different market’.

A large crowd turned up to the auction and when an opening bid of $1 million was placed it was clear the market for this style of property had shifted in the early months of this year. When the five bidders had all been exhausted the final result was a $1.22 million sale. This was just $40,000 short of the 2010 result and $200,000 more than what the vendor would have accepted.

The property market is a unique asset class because it is not primarily an investment. Its main job is to provide shelter. Over time family units grow and fall as we get married, have families, get divorced and eventually die. As a result our living requirements are always evolving.

Over the last couple of years there has been a fear that now is not the right time to buy but the necessity to move has been building in the background.

The market has been slipping back as many buyers opted to wait for the ‘right time’. But while they have been waiting the need for that extra bedroom or smaller home has not gone away. Essentially, even though the market has been weak, the pent-up demand has been growing and now we are seeing that demand flex its muscle.

These buyers are realising that they are in a low and steady interest rate environment and they have not lost their jobs.  The need to do something – in conjunction with the fact many have the capacity to make a move – is driving the market.

Like an incoming tide the market goes through surges. This is a normal part of the market cycle and we are now seeing the market surge back to where it was in 2010.

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.

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