Market Catching Its Breath
as Policy Decisions Loom
Auction Results for week ending May 7, 2017.
A decrease in demand this week was mostly balanced out by lower auction activity, leading to a slight increase in the combined capital city auction clearance rate.
Across the country, 1,662 homes were taken to auction, with preliminary results showing a clearance rate of 74.6 percent. Last week, 74.0 percent of 2,350 auctions were successful.
Though demand has retreated somewhat, the market remains more competitive than this time last year, in part due to weaker than usual supply. One year ago, 67.7 percent of 2,230 auctions found a winning bidder.
The Capital City Stats
Auction volume in Sydney fell this week from 811 to 585. With bidders fighting over a fewer number of properties, initial reports suggest the clearance rate lifted from 74.3 last week to 77.8 percent this week. Over the same weekend last year, 676 homes were auctioned and the clearance rate was 71.8 percent.
As usual, Melbourne was the busiest city for auctions. Vendors brought 782 homes to auction and preliminary reporting shows a clearance rate of 78.4 percent. That’s a slight increase from last week’s final clearance rate of 78.1 percent across 1,226 auctions. At the same time last year, the city was host to 1,150 auctions and bidders snapped up 73.2 percent.
Adelaide and Brisbane both had stronger weeks, posting preliminary results over 60 percent. Early reporting doesn’t look good in Perth, where only 1 in 7 auctions found a winning bidder.
The Graph
The Preliminary Numbers
Sydney | Melbourne | Brisbane | Adelaide | Perth | Tasmania | Canberra | |
Clearance Rate | 77.8% | 78.4% | 60.8% | 66.7 | 14.3% | 50.0% | 65.3% |
Auctions | 585 | 782 | 105 | 95 | 33 | 6 | 56 |
The Analysis
Last week, between Monday and Thursday, the clearance rate in Sydney fell from the preliminary count of 78.4 percent to a final reading of 74.3 percent, after all agents had reported. If the same dynamic plays out this week, we’ll see a clearance rate below 74 percent on dramatically reduced supply, which would indicate a sizeable fall in demand.
CoreLogic’s daily home value index data shows that home prices in Sydney over the past month are still falling on more days than they are rising. In Melbourne, it’s about 50/50 for days rising versus days falling.
The following chart shows CoreLogic’s index movements over the past twelve months. Sydney’s median home price has pulled back to where it was two months ago, while Melbourne’s median remains slightly higher than where it was one month ago.
Source: CoreLogic
We should see another surge in supply to test the market next week. Melbourne is expecting over 200 additional auctions, and Sydney should add nearly 300.
Check back here Thursday for the final numbers released by CoreLogic. I’ll leave a comment below with the updated figures and some commentary.
What It Means For Investors
The jury’s still out on where home prices will go from here. The answer depends mostly on what the government and our regulators decide to do next. If you question the validity of that statement, consider what would happen to home prices if the RBA stopped influencing interest rates, if APRA let banks determine their own risk profile, if tax incentives for investors were abolished, and if there were no first homebuyer grants.
The Australian National University (ANU) just released its findings from a recent poll on housing affordability. Here are a few points of interest to property investors that shed some light on the policy decisions we can likely expect in the not-too-distant future:
Most people are already struggling to keep up with their mortgage or rental payments.
Nearly 1 in 4 mortgage holders would face “quite a bit” or “a lot” of financial difficulty if interest rates increased by two percentage points. Half would face at least “some” difficulty.
Nearly 1 in 4 mortgage holders would face “quite a bit” or “a lot” of financial difficulty if interest rates increased by two percentage points. Half would face at least “some” difficulty.Australians remain very bullish on the future of home prices.
Australians remain very bullish on the future of home prices.A growing number of people believe the current Government is the most important problem facing Australia today.
A growing number of people believe the current Government is the most important problem facing Australia today.Nearly half of homeowners would support measures to stop the growth of house prices.
Nearly half of homeowners would support measures to stop the growth of house prices.Most people would be keen to scrap the negative gearing tax benefit for investors, and only 1 in 4 would fight to keep it.
Most people would be keen to scrap the negative gearing tax benefit for investors, and only 1 in 4 would fight to keep it.An overwhelming majority believe first homeowner grants are the answer.
An overwhelming majority believe first homeowner grants are the answer.Most people either don’t see government planning restrictions as part of the problem or highly value the livability benefits of restricting supply.
Most people either don’t see government planning restrictions as part of the problem or highly value the livability benefits of restricting supply.
In summary, here’s what I see as most relevant to investors:
- The RBA’s low interest rate policy has inflated house prices to the point where any moves upward in borrowing costs would bring financial hardship on a lot of people. This makes future RBA rate hikes unlikely until wages rise considerably.
- Because home market sentiment remains bullish, prices will continue rising unless policy makers step in to cut off demand. It’s uncertain whether the latest APRA restrictions will be enough.
- In general, the public appears to be supportive of measures to curb investor demand. This indicates that the future of politics belongs to those who will take action on improving housing affordability.
- Things are looking up for the Labor party.
- Investors should not be surprised to see changes to negative gearing in the coming years. This will diminish investor demand for residential real estate, at least for existing dwellings.
- Higher grants for first homebuyers are likely, which should serve to further boost demand.
So what can you expect from Scott Morrison tonight when he unveils the Government’s new budget? If the future is like the past, a lot of talk and very little substance.
What are your takeaway’s from the ANU poll?
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The auction results listed here are based on preliminary reporting by CoreLogic.
For the historical data of weekly auction clearance rates, click here.
Comments
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I get quite concerned to read both the poll questions, and the poll results. Often the questions are slanted to favour a particular answer, and often the poll results provide a similarly slanted view from the hoi polloi, most of whom would hardly have a clue re HOW things should happen for best effect.
It can be a bit like asking the general public how we can get the Australian economy back on track – there are few enough people with sufficient knowledge to choose a sensible response, with most answering whatever favours their own (limited) view of the world.
Hence we see poll results with 50% believing that “Negative gearing should be abolished”, a further 25% saying “Don’t know” (that’s fair enough) and just 25% supporting it. The question in and of itself is so weak that few could provide a considered answer in either direction. There is no mention of “unintended consequences” that would likely arise should it be abolished.
Not even a warning in the wording e.g. “Would you support the removal of tax incentives like negative gearing, EVEN IF it were shown that this could lead to higher rents and higher house prices, etc” – just a “support it – Yes or No” poll – how ridiculous, and how useless, yet how likely that it could lead some political party to “take the result and run with it”, leading to (you guessed it) higher rents and house prices !!
“If Interest Rates increased by 2%, how would you go?” was another question. 50% said they would struggle somewhat, and another 20% would struggle “a lot”.
I WOULD THINK SO !!
Do they even know that this “2% increase” is likely to be a 50% increase in their actual mortgage payments? The poll didn’t make that bit clear. What if it had? From where we are today, 2% is one helluva increase.
A concerned Benny !!
Thanks for your comments Benny. It is a shame our policy makers are so swayed by the opinions of the masses. One question: I understand the argument that removing the negative gearing tax benefit would lead to higher rent prices as the supply of available rentals decreases because investors are disincentivised from holding residential real estate. But how would you see home prices going up?
Jason said >>>>> But how would you see home prices going up?
Benny>>>>> I was using what I had read earlier from the Labor hymn-sheet – in there they were talking of setting a date in the future when the negative gearing would be no longer valid for investment houses bought (at least not for second-hand properties). They were talking of leaving existing investments alone, so no huge disruption for existing rentals. But for those wanting to buy more IP’s, the “race is on”.
Usually, investors don’t like paying “over the odds” – but with the timeframe shortening up, paying a bit extra to get another IP before the negative gearing gate shuts could even see some investors taking on the first home buyers in a bidding war. Gotta get those nuts stored before Winter !!
As such, I see that as causing a rush to “fill up” on IP’s ahead of any projected cut-off date. That disrupts the demand curve abnormally, leading to a likely lift in house prices, at least in the short term. Further on, as landlords lift rents to get around the sudden lack of a negative gearing tax benefit, a heap of renters might decide that buying their own home becomes “cheaper in comparison to renting”, especially if Interest Rates have remained low. So, once again, this would set a larger number of current renters onto the “buy their own home” path, again tweaking the demand curve.
Of course, the other part of that last scenario is that with less renters remaining, vacancy rates may climb, leading to investors dropping rents – and the market once again self-corrects !!
What do others see? I’d be interested to hear…..
Benny