The property market has recorded one of its strongest weekends of the year so far, with Melbourne recording over 1000 auctions ahead of the slow Easter weekend.
But comments from Reserve Bank governor Glenn Stevens regarding looming interest rate rises and the risk of investing in property have put a dampener on an otherwise booming result.
In an interview broadcast on Channel Seven’s Sunrise, he has cautioned against over-zealous investing, saying the property market isn’t as simple as it would appear.
“I think it is a mistake to assume that a riskless, easy, guaranteed way to prosperity is to be leveraged up into property,” he said.
“It isn’t going to be that easy.”
He also reiterated the RBA’s previous message that interest rates will continue to rise as the economy recovers, and warned property investors and first home owners to prepare for rising rates.
“We cut interest rates to what we called emergency settings when we had an emergency, when we thought we really were going to face a big downturn and we wanted to try and get ahead of that.”
“Once the emergency’s passed and things gradually look more normal, then it’s not wise to leave interest rates down at rock bottom any longer than you need,” Stevens said. “And you shouldn’t assume they’ll stay that low because that assumption will prove to be unfortunate.”
But Stevens also said the RBA would not be doing any favours to “hammer” home owners unexpectedly with a number of consecutive interest rate rises after a period of low rates, indicating that the bank will raise rates over an extended period of time.
“And of course the banks that are lending the money should be, and I’m sure are, testing the potential borrower: can you handle some rise in interest rates?” he said.
Meanwhile, auction results have remained strong in Sydney and Melbourne, the nation’s two largest property markets, with analysts pinning the weekend as an indicator for the rest of the year.
But president of the Real Estate Institute of Australia, David Airey, says the private sales market is still strong and is often underestimated as an indicator of the industry’s strength.
“Everyone focuses on auctions, but auctions only account for one third of the market. In Sydney that’s about three quarters, and in WA auctions only account for about 2-3% of sales. By far the majority are private treaty, sold and listed by negotiation.”
“It is these sales which are doing particularly well. People may not want to go to auction for whatever reason, and list it for sale, and that market is well and truly alive.”
Airey also issues a warning for would-be property investors – get in now, or it could be too late.
“You better get in now. The interest rates haven’t quite bitten in as much as I thought they would have, and ultimately there will be a period of stabilisation, but right now that doesn’t seem to be happening. I feel this will be a year to remember for property.”
In Melbourne, Real Estate Institute of Victoria chief executive Enzo Raimondo said in a statement the result over the weekend was indicative of a strong market, specifically when compared to last year’s results.
His comments come as a number of real estate agencies in Victoria have called for an update to underquoting laws, saying selling prices in some instances are well above and beyond the listed price range.
“The clearance rate this week was 84%, a result in line with the year to date clearance rate before today of 86%, well above this weekend last year when it was 77% and the corresponding weekend in 2008 when it was 63%.”
“It is clear that as a result of a healthy economy and a stock shortage that the Melbourne residential market is very strong and it has not recorded such a demand level before Easter in recent times.”
The biggest indicator of the solid market is volumes, with Melbourne recording a massive 1004 auctions. A total of 842 sold, with the combined value of all transactions, both auctions and private sales, at $931.5 million.
In Sydney, 426 properties were on sale with 337 going under the hammer, resulting in a clearance rate of 74%. The total value of sales reached $285 million.
In Brisbane, eight properties sold out of 31 in the market, with a total value of $2.3 million, while in Adelaide, 31 properties sold out of 43, with the total value at $19.6 million.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
