Have you heard of the reverse ripple effect?

What does it mean, and how will you take advantage of it?

In 2017, the Melbourne market was flying, and borrowing rates from the bank were around 4-4.5%. Fear of missing out was in play, and sellers had the advantage. Case in point: 21 Leopold Street, South Yarra, SOLD for $1,800,000 in September 2017. Talk about a reality check; this property sold for $1,807,000. Considering stamp duty, selling fees, and holding costs, this investor lost money in a blue-chip location over a 7-year period.

21 Leopold Street, South Yarra, Vic 3141

21 Leopold Street is located in one of the best pockets in South Yarra, anchored between Fawkner Park & The Royal Botanical Gardens. This result is not a reflection of the selling agent. It reflects buying in a heated seller’s market in 2017 and selling in a buyer’s market in 2024. 

It’s worth noting that this home is compromised. It needs a major renovation, has no off-street parking, and is on a narrow one-way street.

36 Dava Drive, Mornington, Vic 3931

Further down the line at 36 Dava Drive, Mornington. This brand-new home sold for $1,810,000 in 2021 in a hot seller’s market. Only three years later, it has since sold for $1,650,000. Again, this is not a reflection of the agent. This result is due to higher interest rates and more supply for buyers. We can provide many more examples where the losses have been significantly higher.

23 Potter Street, Black Rock, Vic 3193

In the middle ring suburb of Black Rock, where the average median price for a 4-bedroom home sits at $2,690,000, 23 Potter Street Black Rock sold in December 2021 for $2,805,000 – Unfortunately for that buyer, they sold in November 2024 for only $2,500,000. Once you take into account stamp duty off, that’s a loss of approximately $470,000.

Now if you think property always goes up in value, this will provide you with a reality check!
Melbourne’s property market was buoyant from 2014 to 2017 and between 2020 and 2022, with clearance rates between 75% and 85%. FOMO was at play. Buyers were aware of the ripple effect, as they often needed to compromise on some aspect of their property search. 

For example, if you missed an auction in South Yarra, you may buy in Prahran or Windsor. Instead of buying in Brighton, you might have purchased in Hampton. This notion rings true further down the line and across many suburbs. Previously, if you were priced out of Sorrento, you would look in Blairgowrie. If you couldn’t afford Blairgowrie, you would buy in Rye. 

The above was true when our cash rate was 0.25%. During the ultra-cheap mortgage rate period, I remember attending inspections on the Mornington Peninsula for our clients. I was lining up to inspect homes, and there were 30+ people at every inspection. I had to wear a mask and maintain social distancing. It was a time in our lives that we will never forget.

Fast-forward to 2024, and we now have what I’m calling the reverse ripple effect. However, unlike requiring you to move one suburb further out, this effect allows you to look at many suburbs closer to the CBD.

If you read my most recent article about my four truths, you may come to the same conclusion as I have. https://www.industryinsider.com.au/melbourne-market-update-eofy-2024/

For the brave buyers who can block out the noise, focus on the fundamentals, and purchase a great asset, you will be thanking yourself in years to come. 

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