Bidders with Jitters
Results for week ending October 25
The downward trend in Sydney and Melbourne continues, as lower auction clearance rates are uncovering greater fear and uncertainty in the market.
Higher borrowing costs seem to have slammed investor sentiment. Owner-occupiers are still showing up to bid, but fewer reserves are being met.
The Stat
It seems Melbourne property owners can see the writing on the wall. Auction volumes were the highest they have been all year with 1,663 scheduled for last week. Demand simply couldn’t keep pace, with only 69.8 per cent clearing, the first sub-70 rate of the year for Melbourne.
Only 995 homes were brought to auction in Sydney this weekend, with a success rate of 64.4 per cent. If this slide continues, clearance rates could be in the 50s soon.
Adelaide brought home the prize for the highest clearance rate over the weekend at 74.6 percent. Brisbane held steady with another reading in the mid-50s.
The Graph
The Numbers
Sydney | Melbourne | Brisbane | Adelaide | Perth | Tasmania | Canberra | |
Clearance Rate | 64.4 | 69.8% | 54.8% | 74.6% | 31.3% | 50.0% | 67.6% |
Auctions | 995 | 1,663 | 223 | 103 | 33 | 8 | 82 |
The Analysis
If the Sydney market breaks below a clearance rate of 60 per cent before the end of Spring, demand will have dropped by one-third in only six months. That’s a lot of buyers leaving the market.
High-end offshore demand remains strong, however. Check out the views from 53 Edgecliffe Boulevard, Collaroy, and then take a moment to repent for coveting. It was the most expensive property sold at auction over the weekend at $4.92 million.
What It Means For Investors
Around Sydney, expect prices to soften coming into Christmas. The City, East and inner West suburbs are a probable exception. Melbourne may also take a little longer to show signs of weakness.
Since home prices are ultimately determined by the availability of cheap credit, all eyes should be on the RBA’s monetary policy decision next week. Unless mortgage rates change course, we may well and truly be in a buyer’s market by winter.
I’ll share more on Thursday why I believe another rate cut is looming. Whether that will transfer into lower borrowing costs for homebuyers is another matter.
For the historical data of weekly Auction Clearance Rates, click here.
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Hi Jason, I’ve been keeping a tabs on the numbers re auction clearance rates from July this year when NSW clearance rates were up in the mid 80%. The obvious thing to say here is the numbers do not show the whole picture and the reporting is a great way to dampen confidence. Back on July 4 the NSW clearance rate was up at 84.77% of 698 properties on the market meaning 592 sold at auction. A week later it was 83.24% of 627 or 627 sales. Boom times or so we’re told! Fast forward to the last two Saturday’s and you have a slowing market and worsening conditions because only 68.3% of 959 sold or 655 properties and then a dreaded 64.9% of 1334 or 866 properties selling.
Obviously we’d all expect the spring auction market to have many more properties on the market but the numbers of sales have continued to climb in pure items, it’s just that more properties are on the market. I’d dare to say buyers have also increased but not at as quick a rate.
It’s a great way to put the brakes on a hot trend but I for one can’t see the doom and gloom just yet!
Hi Mick,
One little “Oops” there –
“A week later it was 83.24% of 627 or 627 sales.”
Does not compute – but lets go with a typo, and call it 627 sales anyway.
So, despite the % figure dropping, actual # of Sales is soaring !!
4th July = 592 Sold
11th July = 627 Sold
17th Oct = 655 Sold
24th Oct = 866 Sold
Interesting !! Jason is quoting Sydney as opposed to NSW…. Still, an interesting point to note, Mick. Even as Sydney slows, are outlying NSW areas having their day??
Benny
Oops! I know I had the correct figure down on paper. If last weeks sales were done on the previous weeks stock it would have been over 90% so it’s got as much to do with a flood of properties coming on to the market. The amount of buyers is still increasing every week!
Thanks for sharing your thoughts, Mick. You bring up a good point, that there are more buyers in the market now than 4 or 5 months ago. But just as we normally see more supply in the Spring, we also normally see more buyers.
Since home prices are a function of both supply and demand, a higher number of sales alone should not be seen as a sign of a strengthening market. The strength of the market can only be measured by the number of buyers relative to sellers.
This time last year, there were considerably more buyers with about the same number of sellers, as clearance rates where in the mid-70’s in Sydney. So last year, prices were rising in the Spring.
Even if Sydney had 1500 sales next week, but on supply of 2500 auctions, that should be seen as a down-turn from this week. The supply matters.
Think from the perspective of seller psychology. If you’re a seller, you don’t care how many buyers there are in the total market. You care how many show up to look at or bid on your particular house. The more options there are out there for buyers (the greater the supply), the fewer potential buyers you have.
If you must sell now to close on the new house you just bought, but no one bid above reserve on your property, what would you do? You would probably lower your price to attract buyers away from the myriad of other options.
If clearance rates get down into the 40s or perhaps even 50s, this is what we can expect. Until then, I think we’ll see a flat market.