It could take six months to shake off auction inaction, writes Nicole Lindsay
IT COULD be at least six months before Melbourne’s auction market stops taking a pasting from private sales.
Auction prices are going down but private sales are going up, a trend that indicates a flight from the hammer.
Research by the Real Estate Institute of Victoria shows only 2551 houses made it to auction in the September quarter, a staggering 43 per cent drop on the 4550 houses that went under the hammer in the same three months last year.
The number of private sales, however, has declined only marginally, from 6597 to 5651.
Part of that resilience can be put down to the fact houses that pass in at auction and sell later are counted as private sales.
The many passed-in properties selling at around their reserve price are bumping up the median price for private sales.
In the 12 months from September last year, the price of houses sold privately increased 12.8 per cent compared with a 2.8 per cent fall in auctioned houses.
And the difference was bigger at the top end, where auction prices fell 9.2 per cent, compared with a 13.1 per cent increase in the selling price of private sales.
The median price for auctioned houses is still higher, at $588,500, compared with $345,000 for a private sale.High-profile buyer’s advocate David Morrell from Morrell and Koren believes the ‘‘auction system is dead and a waste of money’’.
‘‘People spend all that money on advertising and their houses don’t sell,’’ he says.
But REIV president Adrian Jones says private sale campaigns mean vendors just have to advertise longer.
‘‘The auction system is responding to the market place, which is cyclical,’’ Jones says. ‘‘I’ve been around long enough to remember clearance rates about 30 per cent in the early 1990s and when it hit 50 per cent we thought it was terrific.
‘‘The long-term trend is 60-65 per cent and for 18 months we were above that. I had never seen sustained clearance rates of more than 80 per cent before.’’
Woodards agent Cameron Way says auctions are holding up in his area but agents are increasingly passing in properties on a vendor bid.
‘‘It’s a strategic move,’’ he says. ‘‘If you pass in a property to the highest bidder, then you must negotiate exclusively with that person. But if you come back and pass it in on a vendor’s bid, you can negotiate with all the interested parties.’’
Meanwhile, J.P. Dixon’s Nick Johnstone says many more properties are selling off-market and never going to auction.
‘‘Everyone’s talking about how bad Brighton is, but we had an amazing week,’’ he says.
‘‘We did $20 million of offmarket deals last week, including two properties at more than $5 million.’’
Whiting and Co’s Dannie Corr says buyers were definitely showing more confidence last week.
‘‘There seems to be a bit of a lift in buyers willing to commit,’’ he says. ‘‘We sold five properties in the last five days. It seems to veer from week to week but we’ve had a great run. It’s not all doom and gloom.’’
Alliance Financial Group chief executive Craig Dres says the affluent end of the market has been hardest hit.
‘‘What we’ve been seeing in the past two months is a huge influx of private sales,’’ he says.
‘‘A lot might have started out as auctions but later sold at close to the reserve— or less than— because vendors just want to sell.
‘‘Then there are the true private sales that are done discreetly.
‘‘The days of putting up a board and having five buyers turn up on auction day are long gone. Agents are fighting tooth and nail to secure a buyer.
‘‘This is when agents really earn their keep. Five years ago, anyone could sell a property. Now they’re going to have to work hard from start to finish. And even then they might not sell it.
‘‘There are more buyers in the $300,000-$800,000 range because you’re getting into first-home buyer territory.’’ RES believes the market will improve mid-year, though it could take longer for the top end to recover.
‘‘The top end will struggle because it relies on executive pay and bonuses to carry the large borrowing costs,’’ he says. ‘‘It will be the last area to pick up.
‘‘The other areas are already showing signs of improvement.’’
The REIV’s Jones says once the lower end of the market picks up the rest will regain some health.
‘‘That will free up the second and third-home buyers and that will slowly filter through to the rest of the market,’’ he says.
‘‘But I don’t expect anything to happen for a few months.
‘‘We need some good news. We need the share market to calm down and no more bad news, then the real estate market can start to operate again.’’
Off-market: J.P. Dixon’s Nick Johnstone.