Demand Seems to Be Softening but Prices Just Ticked Up

Property Market Update for Week Ending 18 June 2017 

Key Property Market Highlights: 

• Auction volume remains relatively high for Winter, but demand appears to be softening.
• The nationwide clearance rate failed to break through 70 percent again this week.
• Sydney and Melbourne home prices, which were trending down, may now be bouncing back.

This Week’s Preliminary Auction Activity (Week Ending 18 June)

For the third week in a row, the combined capital city clearance rate failed to rise above 70 percent. This week, the preliminary reporting shows that of the 2,407 auctions that were held nationwide, 69.6 percent of them cleared successfully, based on a weighted average.

Last weekend, most states were celebrating the Queen’s Birthday, so both supply and demand were down. The final clearance rate fell to 67.8 percent on volume of 1,279 auctions. That was the lowest clearance rate so far for the year.

Over the same weekend one year ago, both supply and demand were lower. A total of 2,183 homes were presented at auction, and only 67.4 percent attracted a winning bidder.

Source: CoreLogic

Sydney’s preliminary auction clearance rate appeared relatively strong this week at 72.4 percent of 906 auctions, but don’t expect that figure to hold. Last week, Sydney’s final clearance rate was 67.7 percent on auction volume of 619, which was the lowest clearance rate for the city in 15 months. Over the corresponding week last year, 768 homes were auctioned and 73.4 percent were successful.

The Melbourne auction market was the busiest, with 1,121 homes presented at auction. Preliminary results show that 72.2 percent were successful. Due to the long weekend last week, only 389 homes were auctioned, but the final clearance rate was strong at 75.9 percent. Over the same weekend last year, 68.3 percent of 1,085 auctions were successful.

Adelaide was the only other city this week to post a preliminary result in the 70’s. Both Brisbane and Perth failed to clear above 50 percent.

Last Week’s Final Auction Results (Week Ending 11 June)

Both supply and demand were down last week due to the Queen’s Birthday long weekend. The fall in supply in Melbourne meant that buyers were competing for a fewer number of properties, so the clearance rate rose. In Sydney, quite a few sellers chose not to delay their auctions, so volume didn’t fall as much as in Melbourne. With Sydney buyers having more choice, the clearance rate fell.

Here are all the final capital city results for last week:

Source: CoreLogic

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

Recent Price Movements

As you can see in the following graph from CoreLogic, Sydney and Melbourne‘s prices have started to tick back up over the past two weeks.

Source: CoreLogic

In Sydney, the median house price has only fallen on four out of the last 14 days, amounting to a rise of 1.1 percent. The story is similar in Melbourne where prices have risen 0.92 percent over the past two weeks. If this trend continues, by next week our two largest cities could be back in the green for the quarter.

Here are CoreLogic’s most recent daily price index stats for all the capital cities:

Source: CoreLogic

Property Market Analysis

Over the past three weeks, we’ve failed to see the combined capital city clearance rate rise above 70 percent, yet prices in Melbourne and Sydney have been trending up over the past fortnight. So, what’s the story there?

We need to delve deeper into some suburb specific data to answer that question. In Sydney, performance around the Eastern Suburbs where homes are most expensive have remained particularly strong. This week, 85.0 percent of the 60 reported auctions in the East were successful, according to CoreLogic.

Clearly, demand is strongest and supply is weakest in the higher-end, more expensive locations around the CBD. With a higher percentage of expensive properties selling and a lower percentage of less expensive properties selling, the city-wide clearance rate is falling, but the median house price is rising.

In Melbourne, I suspect the same is true, but even city wide, the supply fell more dramatically over the Queen’s Birthday long weekend, compared to Sydney. All of Melbourne’s recent gains have occurred in the past nine days, which further highlights the impact of short holiday-weekend supply on prices. When demand falls slightly, but supply falls a lot, remaining buyers are competing for fewer properties, which leads to rising prices.

What It Means For Investors

We’ll see in the coming weeks whether the trend of rising prices can continue. If so, it could indicate a psychological shift toward optimism and that homebuyers expect interest rates to remain low for the foreseeable future.

Homeowners in Sydney will no doubt be hoping that’s the case. A recent NSW Treasury report shows that in 2016 average mortgage payments in Sydney were almost $51,000 a year. That’s almost double Brisbane’s average of $29,000.

There’s still a big uphill climb for investors looking for finance. ANZ recently lifted interest only mortgage rates for the second time in three months, while cutting rates on principal and interest loans. But let’s not forget, banks still need to make money too. Cutting off investors completely would stifle shareholder returns.

Thanks to a recent hike by the Federal Reserve, the RBA is less likely to cut rates again soon. That said, Australia’s latest jobs report was strong and breathed new life into the Aussie Dollar. If it climbs higher, expect a more dovish tone from Philip Lowe.

So, where are we headed from here? That question remains a crystal ball gazing act with less-than-clear signals from the regulatory powers that be. Keep an eye on APRA, the RBA, and our Government for clues on the direction the winds may blow.

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.