How bad is the real estate market?

Mael, Are you talking about sale by tender? its kinda like a silent auction where buyers put in written bids,

Check out this form put out by fair trading for all sorts of details on what to expect

Mælinar – *spoiler alert* I’ve seen S04E13 said :

An agent contacted me this morning about an enquiry on a house.

After an open day on Saturday, with 31 visitors, he has 15 requests for a condition report, and 3 buyers already offering list price.

He offered me a chance to sit in on a silent auction which was where he was at given the eagerness of purchasers.

That’s where the situation of Real Estate in Canberra is as of this morning.

Maelinar, silent auctions, I thought that contravenes the REI ACT’s code of conduct?

An agent contacted me this morning about an enquiry on a house.

After an open day on Saturday, with 31 visitors, he has 15 requests for a condition report, and 3 buyers already offering list price.

He offered me a chance to sit in on a silent auction which was where he was at given the eagerness of purchasers.

That’s where the situation of Real Estate in Canberra is as of this morning.

Jazz said :

Thats absolute bollocks deano, There are very valid reasons for going to auction as i mentioned above at Comment #8, & none of those have anything to do with an agent wanting a quick sale so that they can collect a commission.

Totally agree that auctions are appropriate for unique properties but, as a real estate agent once told me, the only house that would warrant an auction based on uniqueness is the Opera House. Four bedroom brick veneer in the suburbs is not unique.

As for vendors needing a quick sale, there must have been a lot of people suddenly needing to leave Canberra over the past few years.

Deano said :

Auctions are more for the agent’s benefit than any one else’s.

Thats absolute bollocks deano, There are very valid reasons for going to auction as i mentioned above at Comment #8, & none of those have anything to do with an agent wanting a quick sale so that they can collect a commission.

Skidbladnir said :

Jazz, do you work in the real estate industry, by any chance?

No, but my wife does which gives me an insight to the process and I have been at quite a few auctions both as a buyer, spectator and vendor.

Reprobate said :

Last time I butted heads with Jazz about house auctions (him for, me against) a couple of months ago he revelaed that his nearest and dearest is in the profession.

I’m neither for, nor against Auctions. They have their uses depending on the circumstances of the vendor just like any other tool. I just dont like seeing misinformation thrown about as the basis for peoples decisions.

“Jazz, do you work in the real estate industry, by any chance?”

Last time I butted heads with Jazz about house auctions (him for, me against) a couple of months ago he revelaed that his nearest and dearest is in the profession.

Jazz said :

Ant,

how is a private treaty any different? isnt that in effect a silent auction which is just over a few days/weeks rather than a shorter period and out in the open?

From an agent’s point of view, there is a big difference. With auctions the agent has a limited amount of advertising and inspections, holds the auction and can wrap the sale up and collect the commission within a couple of weeks at most. If the vendor baulks at the price offered, the agent only has to point them outside and say ‘that’s what the market is offering’.

On the other hand, with private treaty they have to advertise and hold inspections up until the house is sold, which may be one week or six months before they get paid. They also have to deal with vendors’ unrealistic expectations regarding price and rejecting quite reasonable offers. The vendor can also decide to withdraw the house from the market, in which case the agent gets nothing.

Auctions are more for the agent’s benefit than any one else’s.

Jazz, do you work in the real estate industry, by any chance?

haha ant, what you’ve just described is a private treaty negotiation as well.

Indeed you could say the high prices the past 5-10 years is artificial.

Bear in mind that 8 years ago when the current boom was just starting, housing was significantly undervalued. Canberra property hadn’t increased (and had decreased in real terms) for an 8 or so year period. I suspect that we will see a repeat of this situation over the next 5-8 years, where prices stagnate. Then when the stagnation has gone on long enough that people can easily buy for less than it costs to rent, the prices will take off again.

In reality, I don’t expect to see major price changes in the Canberra market for a while.

Jazz said :

Ant,

how is a private treaty any different? isnt that in effect a silent auction which is just over a few days/weeks rather than a shorter period and out in the open?

Auctions are about people competing for something, getting emotional, striving to win etc etc etc. Might be great for teh seller getting a great price, but a normal sale is more… normal.

I’ll give you 5 bucks for it.
Nope, not enough.
10 bucks?
Nope, bugger off.
Okay, 15 bucks.
Still not enough. Fuggoff.
All right. I really want the place. What about 25?
Yeah, Okay. The other mob said 20, so you’re above that. Let’s settle.

The process is cool, anyone can wander off at any point. Auctions are about emotions and bad decisions.

johnboy said :

In a hot market auctions let you maximise price, and they do it transparently.

Anyway the data is interesting because it’s today’s data.

Suggests the market is most definitely not hot though.

or there is a glut of auctions on the market. went to one up the road from me a couple of months ago, the sales people were onto me like flies to bad meat. “when are you looking to sell”, can we do a walkthrough, etc , etc. Then, they phoned my wife, and told her they were looking at coming round as I had agreed to it. The hot water I got in was my best non-effort yet. Maybe if I had agreed, nodded my head or something, I could have taken credit for the call, but this was a bolt out of the blue. They wanted us to auction the place off. we aren’t interested. and if we were, not from a real estate agent who has the numberplate – SOLDEM. bragging doesn’t get you sales, professionalism does.

The biggest contributor to rising house prices is people’s ability to borrow more and more money.

Previously (as in, until about ten years’ ago) it used to be difficult to borrow any more than 80% of a house’s purchase price, or something that resulted in repayments above 33% of your take-home income. By last year it had gotten to a point where you could easily borrow 100% of the purchase price and make yourself liable for repayments of up to ~80% of your income.

Now, people’s ability to borrow has been constrained by (a) higher interest rates pushing up minimum loan repayments, and (b) banks taking fewer risks with whom they lend to. There is a lot of very average housing stock sitting on the market with no-one willing or able to purchase it at the inflated prices of 2007.

Barring a quick drop in interest rates (of 1-2%), the market will only get moving again once vendors have accepted that they need to adjust their asking prices downwards to a level that people can afford to borrow to.

I’ve been looking at a few places for a while. Prices have definatly come down. I’ve noticed a number of apartments in Civic which were listed above 500k have dropped below 500K now not a huge amount but seems to be a trend. Likewise on the Gold Coast literally 1000’s of Apartments for sale and some big price drops in the top end of the market for example a place for sale for 1.4m is 350,000 price reduction from 6 months ago. Another one was for sale for 805k in 2005 is now 690k.

Significant price drops are a possibility especially if Australia starts to go into fairly long term down trend as some people predict. It will be a lot different from the early 90’s recession because private debt levels are huge. In the early 90s the problem was business debt running at 80% of GDP but now its the other way around with private debt up around 1.6 times GDP. So if we get any sort of prolonged down turn with big job losses house prices could crash and they are set up up nicely for a big correction being far above the long term average price range. Although if this does happen Canberra shouldn’t be as bad as elsewhere because majority of income is government.

The same thing is happening worldwide Japanese house prices are down 40% over 10 years or 70% in Tokyo. Prices are down by at least 20% in the US same in the UK. One of my mates in the UK says some houses in his area were going for 230k pounds at the peak and are selling for 90k pounds now.

The way I see it any one in the market to buy should wait until this time next year to see what is panning out because we will have a much better idea then.

In a hot market auctions let you maximise price, and they do it transparently.

Anyway the data is interesting because it’s today’s data.

Suggests the market is most definitely not hot though.

Aronde, I wouldn’t say agents push them on people. There might be those for whom its a preferred sales method but there would be just as many who think private treaty gets a better result. I should really come down to the individual vendors curcumstances though and an agent should explain their reasoning for suggesting a particular strategy as each comes with pro’s and con’s.

Personally, i dont think property prices are too high. They are very much a factor of those points that teepee mentions (+ a few others).

Ant,

how is a private treaty any different? isnt that in effect a silent auction which is just over a few days/weeks rather than a shorter period and out in the open?

Now is probably a decent time to buy. I wouldn’t expect too much plummet in house prices because

1 Land release is still mean (witness the people camping outside the govt land sales office in just the last fortnight).
2 People don’t sell below purchase price generally unless the bank forces them to.
3 Population will probably continue to increase – in part due to birth spike of recent years and more due to significant increase in the Immigration intake in the 2008 federal budget.
4 Any stabilisation of interest rates (or even a fall) will help underpin prices at around current levels
5 The dramatic increases we are seeing in rents in Canberra will eventually spill back into demand for sales
6 New houses cannot sell for less than construction cost, or the builders will go to the wall. Prices for new houses are underpinned by “modern” (high) wages for construction workers and pretty high land prices demanded by the ACT Government.

When browsing properties, if I see one is going for auction, I stop looking. Auctions are just pointless, a stunt pulled by sellers and RE agents. I mean, they’re silly. If you’re selling something, then sell it. Auctions are theatre.

Jazz said :

Aronde – IMO Auctions are best suited for properties that are unique in some way and don’t have reasonable comparisons with similar properties in the area.

Agreed – that is why I don’t get why ones I have seen lately have gone to auction. Having never sold in Canberra do agents ‘push’ auctions on to people for some reason?

As for the zero clearance rate maybe it has not much to do with a downturn (even though one may be apparent) but more to do with auctions being the ‘wrong’ sale method for the properties concerned. And for all we know 100 houses could have sold by negotiation last week – why the fascination with auction clearance rates?

Jazz, yeah know auctions are just another form of sale, that why I said it is not a true sign of how the market is going. You have to look at all sales.

Yes if prices dropped that much there would be trouble, but by the same token the prices now are way to high. Indeed you could say the high prices the past 5-10 years is artificial. With the Government unless they are selling their property then what is the issue if it drops $500m. Again the high prices have created artifical wealth and value and if people, including the governmment have borrowed against that then more fool them.

Prices are way too high. Simple as that. (and this is coming from someone who thanks to the high prices has 75% equity in my 8yo house)

Aronde – IMO Auctions are best suited for properties that are unique in some way and don’t have reasonable comparisons with similar properties in the area. Agents will make their price assessments based on the available data so if there is nothing to go on, this can be a viable strategy. Other times there may a great deal of market volatility (particularly in a rising market) where competition for the property may drive the price higher and get a better result for the vendor. Thats not the situation we find ourselves in at the moment. All that said there are other reasons. An auction may get the property to point of sale quicker in situations where the vendor might be moving interstate or OS and need a quick sale. Ultimately the sale price is going to be a result of what the buyer(s) and vendor think the property is worth, and which will move most to reach a common point

JC, Auctions are a method of sale, nothing more, nothing less. They are not a reflection on the market at all. If the market were to drop 30-40% as you suggest there would be bigger problems than housing affordability. hmm, the ACT government losing something akin to 1/2 Billion dollars in asset value comes to mind.

Have been to a few auctions lately and the question I have always asked myself is ‘why’? As in why did they put the property to auction? One was almost a knock down job it was so run down, and the rest were nothing special and only had one bidder (though more seemed to have been registered to bid). One was very funny – opening bid $400k, auctioneer puts in vendor bid for $490 and then seems shocked when original bidder wont go higher then his bid! Bidders comment was priceless ‘mate why would I want to bid against myself!’. The property was passed in and took another month at least to sell.

Auctions are not a good sign of the market. But I say let it cool and let the prices drop. I reckon a 30-40% drop would put prices back into an afordable and realistic price bracket. I pity the first home buyer in this country and city.

my friend had an auction a few weekends ago and no one turned up. they later sold privately to public housing, so another house for someone to trash… and they did a nice job doing it up too.

Ainslie is starting to become affordable. I am bargain hunting.

The market is definately softening, but that was to be expected. I would think this is the start of a general property market stagnation that will last a number of years.

(It’s good news for me – I’m going bargain hunting early next year!)

there is a place in buckley cct kambah that is just sitting there with a real estate shop sign on it. the owners did a complete reno, but at 379k, it appears to have been overlooked for the last 3 weeks.

the Real Estate shop photos apparently don’t do it justice.

Part trend, part coincidence I’d say. I went to an auction last weekend that achieved a good result for vendor and buyer. That said, I reckon auctions are generally in agents’ favour so I think vendors need to try and read the market better rather than get bullied into an auction situation. Auctions don’t always suit all properties, regardless of market activity, and unless you have an outstanding property I would think now is not the time you should be selling by auction.