The spring selling season has brought with it increased supply levels, finally.

Melbourne is finally starting to see a boost in auction numbers for the spring selling season, which appears to have started late this year due to growing concerns about the health of the economy and property market.

There were 626 auctions scheduled around the city on 17th September, which is the highest supply level seen for a Saturday in months but still comparatively low for this time of year.

The number of properties that have gone up for auction in September is down 16 per cent compared with the past two years, but about on par with the stock level seen during the 2008 global financial crisis.

Yesterday, the auction clearance rate was 57 per cent for the 540 results reported to the Real Estate Institute of Victoria. The outcomes of another 86 sales are still unknown.

With such a significant proportion of properties still passing in at auction, the consensus seems to be that it is vendors with quality properties or those willing to meet market expectations – either when setting a reserve or during after-auction negotiations – who stand a good chance of a successful outcome at the coalface.

Take the example of 47 Armstrong Street in Middle Park, a three-bedroom Edwardian that was quoted during the sales campaign at $1.4 to $1.5 million. But when it was clear that interest was at a lower level, the owners chose to set a more modest reserve.

”The feedback was below what we were chasing. The vendors were very motivated to sell, and that’s why they set a lower reserve on the day because that’s where the market was indicating its true value,” said Karl Gillon, managing director of Buxton Albert Park.

The property, which attracted a crowd of more than 150 people and four active bidders, was declared on the market at $1.3 million and sold for $1,345,000.

In Cremorne, more than 100 people gathered for the auction of 56 Chestnut Street, with six bidders emerging from the pack to bid on the three-bedroom townhouse. An opening genuine offer of $810,000 kicked off the frenzied competition that did not end for another hundred bids.

Declared on the market at $910,000, the hammer did not fall until $1,021,000. Biggin & Scott Richmond had quoted it at $800,000-plus.

Two bidders could not get 40 Balwyn Road in Canterbury over the line, with the six-bedroom house passing in at $2.9 million. Jellis Craig declined to comment, but sources say the property later sold for just over $3 million.

Source: Domain

Headline: Melbourne median price jumped 22% in 6 months (July to Dec 2009).

Wow, sounds great. Right?

What it should read is: Melbourne buyers are buying more expensive properties. They are not necessarily paying more for a property, they are just upgrading. No need to get excited.
OR
In Fashion: $600k to $900k homes for home upgraders,
Out of Fashion: First Home Buyer market $500k or lower.

But those headlines won’t sell.

Let me explain why…

Beware folks. Reports in the paper about Real Estate House prices and Property Capital Growth can be manipulated quite easily. When reading reports of massive capital growth and good times ahead, always understand what the reporter is actually talking about, or using as evidence.

Maths Lesson 101: Average vs Median Sale Prices

Average House Price: add up all the numbers and divide by the number of numbers.
Example:
$300,000
$300,000
$500,000
$900,000
$1,000,000
add them up equals $3m. Divide $3m by 5 property sales and the answer is $600,000 average sale price.

Median Sale Price: is the exact middle number in a sequence of numbers.
Example: in the above sale prices, the middle number is the third number which is “$500,000” which is the median. In this case the median has exactly two numbers on each side of it. Now if there is no middle number, such as one more sale at $400,000, then average the two middle numbers, which would be an average of $400k & $500k resulting in $450k median sales price. Remember to order all the numbers from low to high before you start computing the median.

So, above we have an average sale price of $600,000, and a median sale price of $500,000.

So what’s your house worth? And what affects these prices?

If your suburb has a wide range of property, say small units at $300,000 and a few large homes with big land selling at $2m, the average price is stretched higher when the large homes sell, inflating the reported average price of a home.
Of course the more properties sold in a suburb, the more they average out, however in a smaller population, the average price may not be accurate. Easily skewed.

A more accurate trend indicator is the median price. Median (or middle) just means there is more volume or sales headed in one direction, showing a trend or central tendency. It does not mean property prices have risen, it just means buyers are looking in a certain range of property instead of another.

Current Property Price Trends
You may have read that most median prices have increased by 10% to 15% across some capital cities in the past 12 months. (Melbourne, Brisbane, Sydney)

It sounds great, however this does not mean you will get more dollars for your property.

Currently, First Home Buyers who have traditionally targeted property under $500,000 (to receive the highest amount of Grants and concessions), have now quietened down a little and investors that waited for things to calm down + restless home “upgraders” have moved into a higher priced property market, around $500k to $900k in some capital cities.

In an nutshell, a different group of buyers has taken over. They are still looking for a bargain so don’t think you can ask for more for your property just yet.

Conclusion:
In Sydney, the median is now over $630,000 reflecting this shift in buyers.
In Melbourne, the median is now over $540,000, reflecting similar trends.
It does not necessarily mean properties have risen in price (maybe just a little), it merely states that a higher price bracket is in favour right now. Remember, things come back into fashion, like an old pair of “volleys”or your brightly coloured “Wham” T-shirt, so don’t feel too disheartened.

So beware of the hype in the press, and understand that the median is not conclusive evidence of property price increases, nor a reason to invest in that city. Buy wholesale, bargain well and invest wisely with solid investment fundamentals like: Buy Low, Sell High.

Now that the maths lesson is over, go do your homework!