Micro Gluts

Melbourne’s sale volumes have increased markedly. Unlike several other capital cities, buyer are spoilt for choice right now. The particular categories of buyers who are currently facing optimal buying conditions are the first homebuyers, imminent renovators, and down-sizers. This is due to the sheer numbers of exiting investors who are selling their investment properties.

In a recent article, REA Group chief executive Owen Wilson said “39 per cent of Melbourne properties sold in July belonged to landlords, the highest figure of all Australian capitals, after the Victorian government increased taxes on investment properties in January and continued to tighten rental sector regulation.” Mr Wilson also said he expected more homes to hit the market in Victoria’s capital during the warmer months.

According to Investar, the average investment property median price in Victoria is as follows.

Investors typically spend less on an investment property than they would do so for a home, and the data above supports this. It’s fair to say that these property prices sit comfortably within many first homebuyer (and down-sizer budgets). However, Victoria listings of older houses on full parcels of land have also been disproportionally higher too. This is due to tighter rental reforms and compliance requirements.

What this increase in specific market segments does is optimise the buying opportunity for those buyers in the market.

We call it a micro glut.

Micro gluts constantly change and opportunities in various suburbs and dwelling types change every couple of weeks. They are easy to identify, but many buyers don’t realise the opportunity until it’s too late.

One example of micro glut is an increase in specific dwelling listings in a particular suburb. A buyer may be targeting a two bedroom, boutique apartment. Typically in their given suburbs, two or three listings at any one time could be in competition. However, when they can identify a significant increase in available, suitable listings, they can anticipate that the buying conditions will be softer.

Another example may be an increase in a specific type of house in a given band of suburbs. For example, a buyer who is searching for a four bedroom, renovated family home in a particular school catchment can ordinarily expect tough competition. Yet when a disproportionate number of new, competing listings hit, they may find themselves getting lucky.

Whether they are invited to buy before auction, negotiating a pass-in, or simply bidding against low levels of competition, this scenario spells opportunity.

Recently we have experienced micro glut conditions for some of our clients. An investor client with a $1,100,000 budget secured a beautifully renovated, three bedroom, single fronted Victorian freestanding cottage with off street parking in Coburg. We quickly recognised that Coburg had a higher-than-usual number of period houses on the market in this price band, and understood that the conditions were optimal.

For agents, competing listings are challenging. For vendors, they can be a nightmare. Listing agents within agencies are always cognisant of other listings of their colleagues. Many will try to schedule them in a staggered fashion to avoid the chance of cannibalising buyer lists. But in a higher volume market, this isn’t easy to do. To compound this, other agencies have limited visibility on competitor listings and agents (and vendors) sometimes find themselves in these awkward situations where buyers chop and change with their purchase activity. Our recent Coburg experience was a case in point. We had assumed that the property we secured for our client was beyond budget. The property that we had targeted for auction a week after the superior property’s auction was deemed more likely to match our client’s budget.

However, a late twist with a buyer opting for an alternative property left our client in the box seat. We secured the property within budget two nights prior to auction.

For buyers who are keen to understand how to spot a micro glut, it’s as simple as counting the listings on a search engine once the appropriate filters have been applied. The best insight is borne from knowing the typical number of listings at any given time for the same search. Record keeping (for the spreadsheet enthusiasts) is recommended.

As our Spring market heats up and listings continue to surge in Melbourne, now is a great time to plan and watch for the micro glut.

Micro gluts aside though, buying conditions in Melbourne have been eased for some time. Our static market has offered eased conditions for over two years now. My best advice for any buyer who is active in the market currently is as follows.

1. Be aware of your budget and ensure you have proper credit approval.
2. Be clear about your wish list and the feasibility of your criteria
3. Don’t assume a property will sell above the range. Ask about competitive buyer activity.
4. Let the agent know if you have interest.
5. Stay in touch throughout the campaign and be prepared for a quick pivot at any stage, particularly in the final days before auction.
6. Do not be afraid of auctions. Be prepped.