Frenzy, Fear & Greed
Results for week ending May 31
Auction clearance rates remained high in Sydney (86.5%) and Melbourne (78.3%) giving a strong national result of 78.9%. Canberra and Adelaide also broke the 70% mark for auction clearance rates.
The Stat
Auction clearance rates report the number of properties sold compared to the number of properties offered up for auction. A figure of 80% and above indicates a strong performance. The real estate industry aims for 70%.
The Graph
The Numbers
Auction Clearance Rates | ||
| Week Ending 31/05/15 | Clearance Rate | Auctions |
Sydney | 86.5% | 1120 |
Melbourne | 78.3% | 1221 |
Brisbane | 52.1% | 209 |
Adelaide | 72.1% | 92 |
Perth | 50.0% | 20 |
Tasmania | 36.4% | 13 |
Canberra | 70.4% | 52 |
Source – Corelogic RPData | ||
The Analysis
Houses continued to ‘fly off the shelf’ as Sydney recorded another high clearance rate of 86.5%. May has been such a strong month in Sydney that its auction result is likely to be the strongest month of the year. Perhaps predictably then, another property this week sold for $1 million above reserve. But I am almost sympathetic to this result as it really does have ‘million dollar views’!
Melbourne also continued its strong performance with a result of 78.3%. The outer eastern suburbs of Bayswater and Knoxfield did best clearing at 100%.
The underlying national rate of 78.9% reflects the underlying strength of the Sydney and Melbourne results. Both Canberra and Adelaide joined them clearing above 70% for this week.
What It Means For Investors
Despite the very strong ongoing auction results price growth dropped across all cities this month. But this comes on the back of strong rises in capital cities over the past 36 months. So it’s way too early to call an end to the trend. In fact Tim Lawless, head of research at CoreLogic RP data, thinks that there is potentially more growth on the horizon as the latest round of interest cuts, and the effects of the Federal Budget, feed into the system.
SQM analyst, Louis Christopher, views the market in a more aggressive light. As far as Sydney and Melbourne go he sees the market in a frenzy where “there is a lot fear” and “a lot of greed out there right now.”
Policy makers are acutely aware of the position of the market and higher levels of regulatory pressure are beginning to be applied to try and cool the rise in property prices. However SQM’s Mr. Christopher notes these regulatory pressures have had little impact at this point. So, it’s a bit of watch this space to see how far regulation is pushed to slow things down.
Comments
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In reference to your link to the apartment with views, I’ve always thought it is amazing that people place so much value on the space between walls (e.g. strata title).
Thanks Andrew. Perhaps like you I would say I am a property guy first and although I love being a broker is does come in a close second. What is your opinion on accessing equity now. My reference to the question is really only for disciplined investors not spenders. Should investors set up finance now when rates are low are values are high. It is good and very comforting to know that property is doing exactly what it is supposed to do ( responding to demand ) . True investors are really only going to invest seriously in a very different part of the property cycle but having access to funds then will depend on what they do now. Consider an investor with a property with LVR sitting at 70% now. After a correction in valuer assigned value this could fall into the 80% zone and LMI will be payable (and that application would be assessed using a completely different set of metrics). Set up properly now there should be zero interest expense to set up the equity facilities for future investment. Do investors take advantage and plan for buying opportunities and also put a liquidity buffer back in their portfolios?
Hi Don. You’ve raised some excellent questions. I think a starting point is for a person to determine what they are trying to achieve as an investor. It’s always good to be prepared for opportunities but there are different approaches required depending on what each investor has in mind.