I am receiving an increased amount of calls from investors asking me about the market conditions in Melbourne at the moment. I thought I would post here so people can do a little bit of reading prior to making decisions about whether NOW is a good time for their Melbourne purchase. Depending on strategy, price point and goals for the property will depend on whether now is or isn't the right time. IMPORTANT - my commentary is based on what is happening on the ground. I cannot change what is happening on the ground, no matter how many stats you might have that contradicts what I am saying, the commentary remains the same IT IS ON THE GROUND - ie) what I am seeing every week when I am inspecting, buying and attending auctions. if you don't value the information, just don't read it - its pretty simple. What is happening statistically (these are real stats from real sources) lower vacancy rates more demand than supply (366 homes needed per week to keep up with demand) Increasing rental returns (please do servicing at 3% rent return. It is possible to obtain 3.7% depending on area, property type and overriding strategy) Increasing clearance rates (more on that later) Highest migration of all the states (migration drives economy and housing prices) Unemployment 5.4% Low stock on market Increase in DOM (days on market) from 28 days to 35 days (35 days is very short and is indicative of our auction market) Recorded first negative growth in 5 years - .08% or 1.2% down depending on the data source (please read "on the ground" commentary for a better indication of what is really happening) On the ground market conditions - this is what I am actually seeing in reality, on the ground when buying property, bidding at auctions & evaluating prices/ After sitting through a few lectures over the last few days of property economists and property prediction experts, I have determined that ON THE GROUND knowledge is even more important than I once thought. We rely on stats and data when analysing the market conditions for our clients, and I thought that knowledge was 50/50. 50% stats and 50% on the ground knowledge, however now I am thinking it is 80% on the ground (combined with sound knowledge and experience of property and property markets in general), and 20% stats. I know there are some really good arguments against what I have just said and there will always be differing opinions, and I may even change my own opinion again in the future, but for now, I am pretty convinced that you NEED local knowledge to get it right, because stats on paper can look great, but when you know what else is going on locally you may choose a different course than the one the stats are pointing toward. On the ground price changes Some areas have pulled back 10% (notice how the stats say 1%, this is why I say stats alone are not the whole picture) Some areas have pulled back 5% some areas have stabilized some areas are edging more towards growth still then cooling off We literally have different things happening in different markets at the moment. It is not ONE market behaving exactly the same way. On the ground conditions Buyer numbers have reduced (however, prices are still strong in many locations, selling above the range, selling quickly and selling at the top of the range, this is dependent on a number of things, like vendors expectations and trusting their agent with the advertised price recommendations. If the agent has the house priced properly, the home sells for ask price, close to ask or over reserve at auction. If it is priced incorrectly it will sit until the price is adjusted and then it sells once it meets the market) This is going to seem contradictory to point above - many more properties are passing in - HOWEVER - they are selling very quickly after auction and often at the top of the range or over the range. In some areas 5% below vendors expectations. It is area and property dependent. Auction clearance rates have been declining this year, however are now increasing again. This is typical for this time of year as buyers and vendors sit tight in June/July and we begin to see stock levels increase in August and in particular spring) Number of auctions being held are increasing back towards the number of auctions this time last year, which means stock on the market (houses for sale) is increasing Spring will be a good indicator of the strength of the market as it is traditionally our busiest time. Is now the right time to purchase? I will say the same thing I always say, IF Melbourne is a city you want to hold investments in, IF your personal circumstances mean you are emotionally, financially and physically ready to purchase IF you are not an experienced investor who knows how to pick the market, then YES, now could be the right time for YOU personally to purchase depending on your budget and your strategy. But what about the market - is it a good time in the market to buy right now? What if it goes down further? The market is the market. Most passive investors (that is people who buy 1-3 properties over a 5-10 years are really removed from the industry, focused on living rather than studying property every waking hour will ALWAYS MISS THE MARKET. It is unreasonable to expect someone who is not heavily involved in property to be able to "pick" the market. People rely on the media for commentary and the media is out of sync and 6 months behind reality By the time you have read it in a newspaper, it is old news where the property market is concerned. Property is more subtle than just stats and headlines. As you can see see from my notes that there is a subtle art to choosing the right strategy and location dependent of what is happening on the ground at the time. 2) There isn't a bell that rings when the market reaches the bottom - the bottom occurs (I suspect we have already hit the bottom in some locations), then it recovers and prices/demand etc begin to increase and we look BACK and say, "oh, that was the bottom". My solution - we can tell on the ground if things are softening further, so when they are, we negotiate even harder. We take advantage of "opportunities" and pay even less that the market at the time. 3) If prices move back 5% or even 10% - think about what it matters to you. Does it impact your life in any way? Unless you are forced to sell at a time that you had not planned, your life it not affected. I have purchased 3 properties in 3 different markets towards the top of the boom. The properties all went up, then they went down 10%. Then they took 12 months to recover and they kept growing. One was a $420K purchase which went up to $460K then dropped down to $390K, and then 10 years on its worth $1.2m. Do you think I care about the $50K it went down? Do you think I would care about not waiting 12 months and saving the $50K? If I had of waited there is every chance I could have costed myself another $100K and how many times have we seen that happen. Trying to PICK the market is a gamble 50/50. Keep your eye on the bigger picture and move forward knowing its the long game. (buy and hold obviously) Final thoughts Rather than trying to "pick" the market, play the game that is there in front of you at the time. IF YOU WANT TO INVEST IN MELBOURNE SPECIFICALLY - it's probably not going to get any cheaper. (some areas will, say 5%, 10% in other locations. However many areas are already down 10% so it is likely that they have already hit "their bottom" while other areas have not yet. There is an opportunity to take advantage of the market conditions since investors are being shut out (lending) and there is an opportunity to pounce on bargains as they present themselves. We are picking up deals for clients at about 10% lower than last year in the $1.6m-2m mark. a few outer suburbs have pulled back by 10% too (around $600K -$700K mark) if you want to bargain shop and wait for a deal to pounce on, get your finance ready and get in the game. Its likeley these areas have dropped as much as they will before prices move again. If you need some faster growth, then there are opportunities to jump into the suburbs and property types that are still flying (ie inner city villa units for example). Or go to a different state if you plan on investing on other states. Land banking for future development - they are pretty hot in certain suburbs right now, but there are a few suburbs where prices have pulled back by 5% and there is potential with good negotiations to get it down another 5%. Higher yields - they have started, there is still room for further increases. So those looking for a Melbourne purchase and need higher yields from day dot for servicing, it is likely better to wait, unless of course you are in a price point where things are moving (ie pakenham and the regional) then you wouldn't wait for a higher yield, because prices are still moving up so yield wont at the same time) Of course if you like to try and Pick the market (and if you are experienced and have your finger on the pulse and will move fast as soon as the indicators are there) or you like buying only when the market is rising, disregard everything I have said and proceed as normal.