Beware of Quietly Changing Markets

Date: 19/04/2016

Results for week ending April 17

The combined capital city clearance rate strengthened slightly to 68.6 percent, mostly due to lower supply volume. Only 1,667 homes were brought to auction, down from last week’s final tally of 1,831.

The Stats

Melbourne, Canberra and Tasmania all cleared over 70 percent this week.

Melbourne’s clearance rate dropped 1.5 points to 71.7 percent, on stronger supply. The Victorian capital was host to 882 auctions, about 80 more than last week.

Sydney’s clearance rate jumped nearly three points to 69.7 percent. The spike can be attributed to a much lower number of homes on offer.

The Graph

The Numbers

	Sydney	Melbourne	Brisbane	Adelaide	Perth	Tasmania	Canberra
Clearance Rate	69.7%	71.1%	53.5%	66.7%	28.6%	80.0%	64.3%
Auctions	457	882	145	99	30	5	*

* Not recorded by CoreLogic RP Data

The Analysis

Remembering that a 70 percent auction clearance rate is par, it seems the market is more or less holding its own. That said, the results are clearly down on last year.

Demand appears firm, as the fluctuating clearance rate numbers can be attributed to changes in supply volume. Melbourne’s clearance rate fell as more homes were auctioned, and Sydney’s clearance rate increased as fewer sellers came to market.

After next weekend’s ANZAC holiday lull, we should see more sellers come to market, bringing a gradual upsurge of supply through the remainder of the autumn period. If supply increases and demand remains flat, clearance rates will fall and confidence on both sides of the market will be tested.

What It Means For Investors

Speaking of things off the boil, McGrath (MEA) shares have plummeted this week, as the publicly traded real estate agency forecasted a gloomier than expected outlook. Just a few months ago MEA shares debuted at $2.10, but are now down 57 percent to about $0.90 a share. The company blames this week’s collapse on the lower than anticipated volume of homes being listed for sale.

McGrath’s change in value in the highly efficient share market highlights the reality of how quickly markets can change. I’m reminded of a quote by legendary investor, businessman and poker aficionado John Templeton:

“Bull markets are born on pessimism, grow on skepticism, peak on optimism and die on euphoria.”

For “A Lesson From John Templeton On Market Cycles, “ click here.

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.