Demand Surges On Feeble Supply

Results for week ending July 17

Auction volume remained relatively consistent with last week’s unseasonably low levels of stock, with 1,378 auctions held nationwide. This feeble supply made way for a surge of buyers to lift the combined capital cities clearance rate one full basis point to 71.6 percent.

The Stats

Melbourne dominated the auction market over the weekend. The preliminary clearance rate in the Victorian capital spiked to 77.3 percent, even with a moderate supply boost. Although volume is still down significantly from this time last year, 669 homes were auctioned across the city, up from 619 last week.

Sydney was host to 459 auctions, a drop from last week’s volume of 512. The preliminary clearance rate was 76.2 percent, slightly lower than last week’s final result. The fall in both supply and demand shows that there were about 10 percent fewer buyers in the market this week.

Canberra took out the number three spot this week with a preliminary clearance rate of 64.3 percent. Adelaide offered up its poorest result in six weeks, with 52.3 percent of auctions clearing successfully.

The Graph

The Preliminary Numbers

The Analysis

Setting aside an early February 2016 anomaly, the Melbourne market had its strongest result since the first week of August 2015. So is the Victorian capital about to boom again? That will of course depend on how many sellers come to market this spring and how many more local buyers are in the pipeline.

The recent hesitance of sellers indicates that an unusually low level of supply will likely be on offer this spring as well. With interest rates also at all time lows, we should continue to see plenty of willing buyers. Those two factors combined would lead to more clearance rates in the 70s in our two largest capitals.

What It Means For Investors

Some economists expect relatively flat property prices over the next three years in Melbourne and Sydney. Others believe our capital city homes are already 25 percent overvalued and at risk of a dramatic fall. The more pessimistic views point to an impending debt crisis in either China or Europe.

Despite all this, one thing seems to be certain: it will take quite a shock to bring down Australian house prices. Here’s why: The RBA has hinted that in an extreme event like a Chinese economic collapse, it stands ready to devalue our currency even further to keep asset values propped up. It seems our big banks just have too much to lose.

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.