There is little doubt that the Melbourne property market has cooled. But is a recent spike in activity a sign the market has bottomed?

According to property expert and CEO of WBP Property Group Greville Pabst, although traditionally associated with a lull in winter, market confidence appears to be on the rise following a notable change in buyer sentiment in recent weeks.

“A steady decline in the city’s annual growth rate since a peak in March 2010 has eventually led to a softening in local values this year and a sentiment of caution in both buyers and sellers. However, auction results during the last fortnight are a positive sign for the Melbourne market,” says Pabst.

According to the REIV, in the year to date 40 per cent of all of Melbourne’s auctioned properties have passed in as a result of what is believed to be buyers’ cautious approach to the market. However, Pabst comments that in recent weeks an increasing number of passed-in properties are selling following tough post-auction negotiation, “resulting in good outcomes for buyers and fair results for vendors.”

Though, Pabst remarks that the positive change hasn’t affected all areas and that the recent spike in buyer demand is currently patchy. “Some areas are faring better than others such as Melbourne’s inner east where a week ago clearance rates for units reached 90 per cent. But despite this strong result for the east buyers remain very selective; not only about the suburbs they wish to reside in but also about the streets and property types.”

“Buyers looking in the inner suburbs are in pursuit of lifestyle. They want to be close to the CBD and employment with good access to cafes, restaurants, shopping and recreational facilities; and they’re willing to pay for it,” says Pabst.

In recent weeks, popular bayside suburb St Kilda has seen mixed results as buyers vie for only a select few of the many properties on offer in the area. Of the suburb’s recent performance Pabst claims that while offering fantastic lifestyle opportunity and investment potential “buyers and tenants in St Kilda are placing increased value on security when deciding to buy or rent, with implications for demand and prices for some local properties.”

According to Pabst, micro drivers such as this are common to all suburbs, each with their own set of issues that buyers need to be wary of. “Investors and even home buyers need to understand that not every property, even those in the best of suburbs, is a good investment. There are many factors that can impact investment potential and return in the long-term. Location is but one factor to consider.”

In Melbourne, all residential property has risen in recent years, however, Pabst believes that despite the underpinning of population growth Melbourne’s unparalleled increase in property values cannot be sustained indefinitely.

“During good times every property owner benefits but in a soft market, the likes of what we are currently experiencing, only a select few properties perform, while many others, namely those with flaws, typically suffer. This is what we’re seeing for some properties in St Kilda at present; a limited pool of buyers vying for the suburb’s best properties but leaving the less desirable ones virtually untouched.”

When asked whether he thought that the improved sentiment was a sign that the market had reached its lowest point, Pabst responded, “There appears to be some early evidence that property values are currently in the lower trough. However, while I don’t expect values to fall considerably further it is unlikely that Melbourne will see any significant positive change in values in 2011.”

Yet, Pabst asserts that this outlook is no reason for buyers and seller to sit on their hands and wait for the market to improve. “While the overall outlook may show limited potential there is good opportunity for shrewd buyers to secure quality assets at good value.”