Based on Reported Auction Results*

Spring Turns Up The Heat

Ever experienced the solitary feeling at an auction of standing alone at the end as an under-bidder? It surely must represent all that is not the feeling of achieving the pinnacle of one’s aspirations. You may be downright disappointed, or even philosophical … But either way, it is not the place you want to be. You didn’t bid to come second or third.

Sales results in recent months have moved from a sleepy between-the-price-quote flags, to in some cases well north of the top end figure.

What makes sales results lag their price quote indications? It’s really not a mystery. As every property is different, price movements in the market are slower to be detected. To illustrate it more clearly, if exactly the same object sells for more today than yesterday, it’s plain to see there has been a change in price. But when the objects are noticeably different to each other, it is more difficult to spot the early rate of change to trend across the group of objects. Style, condition and location all very greatly with real estate. When assessing the market’s general health, what we use at RBA as our barometer and have done for decades, are the auction success rates across Melbourne. Since the election, we believe prices for houses have generally moved up 10 to 20%. That may sound like a big call for the short time involved, however from observations and anecdotes, this is our belief. It is particularly so the closer in you are.

Why is this not then reflected more accurately in selling agent auction “price quote” indications? A fair question, but there is another simple answer. Agents rely on historical sales evidence to justify opinions of value. A market moving quickly has already likely moved past today’s opinion justified by past sales. But an agent will reasonably (and I will go further and say must not) anticipate what might seem a future value figure. This is risky and could be argued to be reckless, especially with auction campaigns. In rising markets, the “quote range” will usually lag the real market, because no quote range should ever be in front of it. If you’ve ever sold real estate, you will understand how important this is to maintaining some order in the process.

For a buyer, the way around the moving market price and lagging price quote is a matter of anticipation and reading the play. Depending on market conditions, buyers will sometimes need to be ahead of the quote range if they want to be successful. The casualty list of buyers failing to heed this market message grows as time and price strength maintain their course. One also needs to be careful of the advice received when out to dinner with friends. Although it may be well-meaning, it could cost more in the long run. Nobody can say how long a run will extend. The long term trend is up though … that we do know.

Bruce Renowden