Demand Strong Leading Into Spring Super Saturday

Results for week ending November 20.

Auction volume has nearly returned to last year’s level, as 2,950 home went under the hammer across the combined capital cities this weekend, up from 2,897 last week. Over the corresponding week last year, 3,166 auctions were reported.

Although a higher number of listings has caused an ever so slight easing in clearance rates, sellers remain very much in control. Capital city buyers snapped up 75.6 percent of auctions this week, down barely from last week’s result of 75.8 percent. Over the same weekend last year, only 59.5 percent of auctions cleared, highlighting the strength of demand this year relative to last year.

The City Stats

Sydney was host to 1,064 auctions this week, down from 1,089 over the previous weekend. Demand slipped marginally as the clearance rate fell from 81.4 percent last week to 81.2 percent this week, on lower supply. Over the same weekend last year, a clearance rate of 56.7 percent was recorded across 1,116 auctions.

Melbourne appears to have seen a surge in demand with a preliminary auction clearance rate of 79.4 percent, a jump of nearly three basis points from 76.8 percent last week. Supply fell slightly from 1,329 auctions last week to 1,299 auctions this week. At this time last year, 1,510 homes were presented at auction with only 67.7 percent clearing successfully.

The Graph

The Preliminary Numbers

* No data reported by CoreLogic.

The Analysis

Buyers will have a greater challenge keeping the clearance rate propped up in light of the upcoming supply surge expected over the upcoming weekend. Sydney has 1,143 auctions teed up and Melbourne is expected to host a whopping 1,508 auctions. That should push the combined capital city auction volume to well over 3,100 and on par with last year’s levels.

The current four-week-average clearance rate seems to have topped and may be beginning a downward trend, as you can see in CoreLogic’s chart below. Don’t be surprised to see a moderate drop in sales relative to supply this weekend.

What It Means For Investors

Goldman Sachs just turned bullish on the Australian economy. In a rather optimistic economic report, the banking giant upgraded our growth forecast for the next four years, and sees inflation at well over 3 percent by 2020. It also sees the RBA lifting interest rates as soon as the second half of next year, and then steadily hiking until we hit a 3 percent cash rate by 2020.

Mind you, this is the same bank that was boasting of a bright future for the U.S. economy in 2007 and 2008. Besides, just a week ago, Macquarie Bank economists forecast the complete opposite, warning of slower growth and further interest rate cuts to come from the RBA.

I hope Goldman is right. Interest rates are artificially and dangerously low, causing malinvestment and distortions in the housing and financial markets, as this recent sale indicates (purchased for $700,000 in 2007 and just sold for $4.2 million). Unfortunately, Goldman is probably wrong. Global growth rates remain low, debt levels are getting higher, and central bankers seem determined to try to print our way out of a disaster.

If our regulators can stay on the current path, continued upward pressure on home prices is likely. Just beware, that’s a pretty big “if.”

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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.