First home buyers get smashed in Melbourne's hot auctions

Melbourne is seeing an upsurge in well-off baby boomers paying cash for residential properties and it’s making life extremely challenging for younger buyers.

Jellis Craig Fitzroy-based director Craig Shearn said young professional couples targeting period cottages were being routinely outbid by cash buyers.

“They just get smashed at auctions by the people who have got cash,” he said.

“These buyers are selling houses for $2 million, $3 million or $4 million and are buying back in, either to buy something to live in now or for later on.”

Mr Shearn estimates inner city houses that were worth $900,000 to $1.2 million a year ago, now cost buyers $100,000 to $200,000 more.

He said the driving factors for this growth were low interest rates, low supply and the confidence being shown by cash-rich member of the boomer generation.

Last week, the Reserve Bank again left the official cash rate on hold at 1.5 per cent. The ongoing low interest rate environment makes it a straightforward business for the owners of expensive homes to sell for above-reserve prices and spend their cash elsewhere.

Other property types popular with younger buyers are also being squeezed.

Noel Jones Balwyn partner Joe Butler said two-bedroom villa units in Surrey Hills and adjoining suburbs had soared in price over the past 12 months.

“They were fetching prices in the mid-$600,000s,” he said. “They are now fetching in the mid-$800,000s.”

Some remarkable prices are being paid by downsizers in Melbourne’s outer ring, too.

Barry Plant auctioneer James Hatzimoisis has recently sold a number of single-level homes to older couples.

He said his selling staff had been blown away when a three-bedroom property at 12 Pembury Way, Hillside last week attracted five bidders and sold for $851,000, well ahead of the $700,000 reserve.

The house went to a middle-aged couple who wanted to live closer to their adult daughter.

Mr Hatzimoisis said it was rare for houses in the area to dramatically exceed reserve.

Melbourne’s auction market paused for the Labour Day long weekend, with most vendors opting not to go to auction on Saturday. Fewer than 260 metro area auctions were held, and the Domain Group posted a clearance rate of 79.2 per cent from 152 reported results. No results were reported for a further 102 auctions scheduled to be held on Saturday.

Sub-$1 million properties appeared to do well. On Saturday, Buxton fielded three bidders at the sale of a weatherboard house at 28 Farleigh Avenue, Burwood, which was quoted at $700,000 to $800,000. The property was passed in to an owner occupier for $760,000. After negotiations, it sold for $851,000.

The Domain Group also said Melbourne had averaged a clearance rate of 79.7 per cent since early February, which was the best start to an auction year since 2010.

Property expert Greville Pabst, of the WBP Property Group, said the 80 per cent-plus auction clearance rates recorded off big volumes for last weekend and the previous weekend were an indicator that the market would stay strong for the rest of the year.

He said low interest rates were encouraging home owners to renovate rather than changeover to a new property, which was dampening stock levels.

Added to this, few property owners are experiencing mortgage stress at present.

“We are not seeing financial tension in the market,” Mr Pabst said.

“There is also a fear among many people that if they do sell, they are not going to be able to get back in to this market.”