Property experts are warning prices will continue to fall into 2011 as the market becomes flooded with unsold properties, as buyers remain hesitant due to higher interest rates.
The warning comes as the market recorded another lacklustre performance over the weekend, with clearance rates still in the 50s in Melbourne and Sydney. But SQM Research founder Louis Christophe says that figure could actually be much lower due to what he say is a flawed method of reporting.
These experts say the lack of demand in the property sector is leaving agents with thousands of unsold properties heading into the traditionally quiet Christmas holiday period. Real Estate Institute of Australia president David Airey says this will only continue to put downward pressure on prices.
“Western Australia is leading the way with what we’d call a significant oversupply, brought about by sales being well under their long-term averages,” he says. “And in Melbourne, you have week after week with auctions over 1,000 listings.”
“So effectively you have low levels of sales due to buyers backing away, and people continuing to put properties on the market because they are panicking a little bit. They think they need to sell them quickly, but in reality they don’t.”
Airey says real estate agents are too willing to accept any listing they are offered, and warns they need to be more discerning.
“To push a property on the market in an already oversupplied environment will further depress the market price,” he says.
“Many of the people selling their properties don’t necessarily need to sell them. Agents taking these listings should give them other alternatives, such as deferring their sale until next year.”
SQM Research director Louis Christopher says the downward pressure on prices will be exacerbated in the upcoming Christmas period, when the demand for auctions will fall. He points to REIV figures showing over 1,000 properties were put up for auction in Melbourne – well above the long-term average.
“There’s no question about it,” Christopher says. “The group of buyers is very small and we are still seeing a lot of failed stock. We are expecting that prices will fall for the December quarter, and definitely going into next year, we will see more sellers than buyers.”
“I don’t think we’re seeing a panic, but we’re definitely heading into what I would call a housing downturn now.”
Airey agrees, saying there will be very few buyers in the December-January period. “There won’t be a lot of activity during that period at all.”
The comments come as the capital cities recorded poor performances over the weekend, with clearance rates at 59% for Melbourne, according to the REIV, and in the low 50s according to Australian Property Monitors.
But Christopher says these figures may not be totally accurate. He points to the APM figures which show that almost half the auctions in Sydney and Melbourne went unreported. Taking those figures into account, he claims the auction clearance rate could be much lower.
“After you take the unreported results, it could be that clearance rates may even be in the low 40% mark…. these clearance rates spell a very weak market.”
However, APM senior economist Andrew Wilson says the sample size is large enough to get an accurate result, and also says APM continues to upgrade its results as new information becomes available.
“There is always the possibility of a difference between the reported results and the listed amount of auctions. But what you’ll find is that there is enough there to get an idea of what the market is doing.”
“I think the reports give an accurate representation of the outcome of the day.”
The REIV claimed Melbourne had a clearance rate of 59%, “a result that is consistent with the market’s performance since the latest rate increase”. The total value of sales came to $310 million.
In Sydney, APM claims 198 properties were sold with a 51.8% clearance rate, while Melbourne recorded a 54.8% rate. Adelaide recorded a 40% rate, the figures claim, while Brisbane recorded a 21.2% rate with 14 properties sold.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
