September 11, 2013
by Antony Bucello & Catherine Cashmore from National Property Buyers - 10 Sept 2013
There has been enough pre-election chit chat to assure sellers – and give confidence to buyers – that housing values do not typically suffer a negative impact from Federal elections. Albeit, we think in the current circumstance, the forgone conclusion pointing toward a strong Coalition win was enough to underpin a sense of security, and perhaps relief, that Australia was not going to suffer a second term of minority rule – with fractions in the Labor party overshadowing the political discourse.
Around 44/45 per cent of Melbourne’s current buying market consists of investors. Loan commitments for the investment share of our buying market are outpacing that of owner occupiers. Housing values in the inner and middle ring locations are performing robustly on the back of a rather heated auction terrain with the REIV noting the biggest rises in areas where this method of sale pre-dominates – principally the inner and middle ring suburbs some 5 – 15km from the CBD.
The auctions we attended on Saturday, although down in overall attendance, achieved healthy prices with a 74 per cent clearance rate on the back of 441 reported results.
Some commentators have suggested the certainty that typically follows a Federal Election will further fuel the positive ‘feel good’ furore we’ve seen of late, thereby inflating values further.
However, analysis of this type always needs to be assessed in the context of our current financial prospectus, which in a post GFC environment, is facing headwinds.
Importantly, we entered this election with a weaker economic outlook than the prior seven elections and there’s been a distinctive lack of any big spending policy promises aimed at the consumer, with the rhetoric instead focused on ‘cutting’ in order to return the budget to surplus at some future point.
The rise in household saving in itself is reflective of the still somewhat ‘cautious consumer’ – and slowing income growth, along with a prospected rise in unemployment to 6.25 per cent, will in my opinion, pull any extended ‘boom’ we’re currently experiencing in the established sector up short.
This is not to dismiss the ‘feel good’ factor which will likely ensue from a now majority government and it seems we have some way to go before investors give up their passion for real estate, with the latest ABS data showing investor finance commitments currently at their highest level since June 2007.
Along with this, housing finance approvals rose ahead of expectation in July. The number of approvals for owner-occupiers has been on an upward tick for over seven consecutive months, reaching its highest level since October 2009.
Importantly, the approval trend for established dwellings continues to outpace new construction, which will do nothing to aid affordability for first home buyers.
We’ve written previously on the various war stories witnessed on the ground, as auction results exceed reserves by some 10/15% – and on occasion, reach a level, which defies all rationality.
In this respect, any benefit derived from lower interest rates is somewhat offset by the inflationary pressure placed on prices.
Indeed – you’d be hard pushed to find a first-home buyer shopping in our largest capital cities, who has not been outbid by an investor through the course of this year. Investors understandably have a stronger financial arm.
All in all, in light of a new federal Government, the real test for Melbourne’s property market will be next Saturday (14th) – which would have been the Election Day had Gillard retained power. Falling on the Jewish festival of Yom Kippur, which will significantly lower activity in suburbs such as Caulfield and St Kilda East, it will provide a suitable test for the market’s initial reaction to our newly elected Government.