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Ben Kingsley Blog post by Ben Kingsley

Property Supply Adding to Cooling Melbourne Market

Supply and demand are the primary forces in an ’open’ marketplace that determine the value of a good/service. This is fundamental economics.

The property market is no different. Earlier this year we saw property values move higher on increased demand. Demand that has since softened as interest rate increases have pushed out some buyers due to their inability to borrow a sufficient amount of money to secure a property within a desired area and price range.

On the property supply side of the equation we have seen sellers in the form of ‘upsizers’, ‘downsizers’ and some investors looking to sell whilst they believe the market is hot to maximize their returns, whether to cash in or to use as equity to get back into the market.

Traditionally this time of the year would see fewer properties on the market hence the titles, “Cooling Melbourne Market”, as the winter chill usually keeps us indoors and less keen on stepping out every Saturday to look at properties. Statistics indicate the volumes of stock, especially in the auction zone suburbs have increased substantially during the past month or two. This is actually good news for the market, as long as demand doesn’t fall away too quickly.

 

Why is it good news?

Our market recorded around 30% value growth in the past 12 months, yet historically properties in the auction zone regions record annualized growth average out over the years at around 9% to 12% compounding growth per annum.  So roughly speaking this level of growth is almost the same you would get in three average years.

This high level of growth is certainly unsustainable over the longer term of a few years and if it does occur then the famous ‘property bubble’ would form and values would have to fail, because at some point demand would drop significantly and supply would be overdone.

The good news is that there is still an adequate level of demand to see values stabilise at this point rather than fall away.  Instead of 5 or more active buyers at any auction we are now seeing 1 or maybe 2, so the frantic demand is no longer in play and therefore not pushing values too high or too quickly.

So importantly if we are returning to a more balanced market, what we are going to see is in my opinion a new base level of value for now, and not so much of a fall in values within the auction zone regions.

Once again buying opportunities will present themselves to astute buyers, as the market potentially shifts back to a ‘buyers’ market as demand softens.

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