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Bigger crowds and optimistic buyers marked auctions across Melbourne at the weekend, the first since the re-election of the Coalition that pundits say has contributed to a feeling of confidence.

Last weekend, 711 auctions were held across Melbourne city, which represents the second-largest number of auctions in Melbourne so far this year.

According to economic pundits out there, the Coalition’s win coupled with the Reserve Bank’s hints of interest rate cuts and the loosening of lending criteria – which will enable borrowers to increase their borrowing capacity – one of the main reasons why we’re starting to see added confidence returning to the Melbourne real estate market.

Although, the auction clearance rate for Melbourne is certainly a bit higher than it has been for the past six months or so, it’s a good tentative sign the market may have bottomed or is what we are experiencing now just a ‘dead cat bounce’.   That’s the million-dollar question…

While it seems that selling agents are much happier now compared to 6 months ago, real estate prices in many suburbs across Melbourne are still 20% – 30% down from the record 2017 prices.  Speaking to many different selling agents on a daily basis, it does appear that more buyers are turning up at auctions.  But, with more buyers it unfortunately hasn’t necessarily resulted to an uplift in house prices and nor has it resulted in better bidding.

What Is A Dead Cat Bounce?

A ‘dead cat bounce’ is a temporary recovery from a prolonged decline that is followed by the continuation of a further decline in prices.  A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as real estate or property.  Frequently, downtrends are interrupted by brief periods of recovery – where prices temporarily rise. The name “dead cat bounce” is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.  And, there’s your answer!  Over the last 12 months or so, Melbourne has experienced its most rapid and steepest decline in property prices in its history according to the Victorian Government who released their budget for the year 2019-2020 only a couple of days ago.

What Does A Dead Cat Bounce Tell You?

A dead cat bounce is a price pattern used by technical analysts. It is considered a continuation pattern, where at first the bounce may appear to be a reversal of the prevailing trend, but it is quickly followed by a continuation of the downward price move. It becomes a dead cat bounce (and not a reversal) after price drops below its prior low.  However, if you’re buying a property and planning to hold onto it for the longer-term, a ‘dead cat bounce’ probably won’t have much impact.  The ones who have the most to lose from a ‘dead cat bounce’ are Short-term property traders such as property developers or house renovators.

Real Estate Market Prediction?

Unfortunately, one of the limitations of using the ‘dead cat bounce’ theory is that it can only be identified after the fact, which means that vendors or sellers will only notice a bounce after a steep decline may think it’s a dead cat bounce, when in fact it is a trend reversal – that is, instead of being a short-lived bounce, the rally may signal a prolonged upswing.  How can investors determine whether a current upward movement is a dead cat bounce or a market reversal?  If we could answer this correctly all the time, we’d be able to make a lot of money. The fact is that there is no simple answer to spotting a market bottom.

For a confidential discussion of where to buy in Melbourne and expert property advice , contact Zac Newbold directly on 0418 144 644 or via his website by clicking on this link.

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