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As durability of the rebound is questioned, Melbourne auction prices still selling 10% above pre-auction price guide

Property Observer

Property Observer
By Alistair Walsh

23rd August 2013

Cloud nine has floated over to Brunswick West with a house selling for 41.4% more than the pre-auction price guide, continuing a trend of properties selling above their price guides.

Melbourne auction prices are still hovering around 10% to 11% above their pre-auction price guides.

Auction price results from the past two weeks were consistent with the previous three weeks that followed the July school holidays.

A Property Observer analysis of 47 auction sales in the August 18 and August 11 weekends found 45 of them sold for more than the price bracket indicated by their price guides.

Those 45 sales sold for an average of 10.4% more than the upper bracket of the price guide – slightly down from 11% in the previous survey.

A slightly greater proportion of properties sold for more than 10% above the price bracket – 18 out of the 47 sales compared to 25 of 68 sales in the previous period under review.

A three bedroom home at 43 Smith Street in Brunswick West (pictured below) sold for $1.018 million despite a pre-auction price guide of $660,000 to $720,000.

Buyer’s agent Catherine Cashmore said interest in the property was unprecedented. A valuation prior to auction put it at $850,000 and the first bid of $740,000 was more than the reserve. There were more than five bidders on the corner block California bungalow.

“Prices in the area are being pushed 10% to 20% above reseves. We assessed that in the current market it could worth $850,000. The first bid put it straight on the market,” Cashmore told Property Observer.

“The agent did the right thing. The reserve wasn’t too far from his range. We’d anticipated $850,000 but at $950,000 there were still three bidders, over $1 million there were two.

“The price was far above what could be justified by any comparable or any previous sale.

“You could have had a developer who’d assessed that he could make his margins on it.
“But if it’s the classic buyer putting down a deposits of 20% and borrowing 80% you’d have to ask if the valuer will rubber stamp it.”

It was sold by Nelson Alexander agents John Matthews and Jillian Brooke.

The next greatest disparity was a four bedroom weatherboard house at 25 Kendall Street in Ringwood (pictured below) which sold for $761,000 despite a price guide of $540,000 to $590,000 – a difference of 29%.

It was sold by Jellis Craig agents Daniel Bullen and Stephen Le Get.

Of the 47 auctions analysed just two sold for the indicated price guide.

Homes in the sub $600,000 bracket were closer to their price guides than other brackets, selling for an average of 5.44% more.

Homes in the $600,000 to $1 million bracket sold for 12.3% more than price guides.

And homes in the $1 million plus bracket sold for 20% above price guides.

Cashmore says a lot of bidders at auctions enter in a testosterone fuelled competition to win the property, only coming to their senses after the auction.

“When you bid for a property and get caught in a battle you don’t get a chance to step back and think rationally. One of the reason advocates try to go down prior to auction is even though you pay a slight premium when the agent calls around the other buyers to ask if they want to put down a counter offer they have a chance to sit  down and think,” Cashmore says

“Most of the buyers have done their homework and they can think reasonably about what it’s worth and what they want to pay. When you’re caught up in an auction there’s a pseudo endowment psychology. It’s almost as if you own it already.”

The auction results analysed in the survey are taken from National Property Buyers who attend auctions of properties they deem to be investment grade.

The price quotes are received as close as possible to the auction date to avoid step quoting practices, the buyers agency notes.

Meanwhile RP Data’s Cameron Kusher notes an inevitable interest rate rise could spell the end of a rebound in the Melbourne housing market.

Melbourne house values have increased 3.4% over the past  financial year – compared to a decrease of 6.6% the previous year – a recovery that Kusher puts down to low interest rates.

“But my concern is how this rebound can be sustained, particularly once mortgage rates start to rise,” Kusher wrote in the Herald Sun recently.

“I struggle to see how the recent increase in home values is based on sound market fundamentals. Values have risen across the city virtually unabated, bar a fall in 2008 and 2011, since 1996, which has stretched affordability.

“While unemployment remains relatively low, as do mortgage rates, if there is a shift higher in either it could have an adverse impact on Melbourne home values”

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