Home Shortage Fuelling Greater Urgency Among Buyers

Results for week ending October 9.

Sydney, Melbourne, Adelaide, and Canberra all posted preliminary auction clearance rates above 80 percent, lifting the combined capital city average to 79.2 percent. Auction volume was back up after last weekend’s holiday lull, with a total of 2,246 homes going under the hammer across the country.

The City Stats

In Melbourne, there were 1,110 auctions scheduled, and the initial reports show that 81.2 percent found a winning bidder. Last week, Melbourne’s final auction clearance rate was 87.2 percent. While that appears to be a strong result, there were only 78 auctions held due to the AFL Grand Final.  Over the same weekend last year, when volume was higher, the clearance rate in the Victorian capital was 73.4 percent.

Sydney seems to have only narrowly beat out Melbourne’s result, as 81.5 percent of 774 auctions cleared successfully. Last week, Sydney’s volume was light due to the Labour Day long weekend. Only 519 auctions were held, with 82.5 percent finding successful bidders.  One year ago, the clearance rate was 69.6 percent on volume of  1,197 auctions.

Adelaide buyers delivered the highest clearance rate of the year so far. The city was host to 97 auctions, and 80.6 percent were sold. Canberra also broke a 2016 record, with 86.7 percent of 68 auctions clearing successfully.

The Graph

The Preliminary Numbers

The Analysis

With supply back up to within a normal range for this year’s Spring selling season, we can clearly see that demand continues to trend higher. Here is CoreLogic’s graph showing an average of the last four weeks:

Melbourne is showing particular strength, as buyers there managed to post a clearance rate practically the same as Sydney, yet with far greater supply. Melbourne saw 901 properties sold at auction, while Sydney’s tally was only 631.

Will stock levels continue to lag behind demand? The number of listings for next week is virtually the same as this week, so with a consistent supply base, the upcoming results will give a clear snapshot of whether demand will continue to trend higher.

What It Means For Investors

In light of super-low interest rates and an ongoing shortage of homes for sale, competition between buyers will likely remain fierce. As we approach the end of the year, and with many buyers hoping to secure a property before Christmas, expect to continue to see a plethora of bidders showing up to have a go.

Is now a risky time to be speculating on capital growth? Apparently it’s not, at least according to our Treasurer Scott Morrison. In a recent interview at the IMF’s headquarters in Washington, he said all the fuss about home prices is exaggerated and there’s “no evidence” the real estate market is overvalued outside of a few small areas. “So I think these risks can be overstated. They can be really overstated,” he said.

He also believes that while Japan and the EU appear to be quite keen to continue their monetary easing policies, here in Australia, he expects the RBA to take a different approach. “It’s up to Phil what happens next, but I don’t detect any great sort of enthusiasm for any further easing there,” Morrison continued.

Let’s hope he’s right. While futures traders are pricing in a less than 50/50 chance of another rate cut in 2017, the government’s appetite for spending as well as slow global growth will make further easing by the RBA a very tempting proposition.

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The results listed here are based on preliminary reporting by CoreLogic. The final results will be reported in next week’s post.

For the historical data of weekly auction clearance rates, click here.

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.