Economic Armageddon or Investor’s Bliss?

Auction Results for week ending February 19, 2017.

Auction volume surged this week to 2,280 across the combined capital cities, up from last week’s total count of 1,591 auctions. Again, this week, buyers absorbed the supply increase, and then some, as the preliminary clearance rate surged to 77.0 percent. Over the same weekend last year, supply was greater and demand lower, when 2,347 auctions were held, with 71.8 percent finding a winning bidder.

The City Stats

Sydney continues its invincible run, with vendors there notching up a preliminary success rate of 83.5 percent. A total of 844 auctions were held across the city. Supply was on par with last year, but demand appeared to be much higher. Over the corresponding weekend in 2016, 800 auctions were held with a clearance rate of 76.5 percent.

Auction volume in Melbourne doubled this week to 1,103, and the city was by far the most active market. The preliminary clearance rate strengthened slightly to 76.7 percent, up from last week’s final tally of 75.9 percent. This time last year, a similar number of auctions were held, but demand was slightly weaker.

Canberra continues its run in the 80’s, with a preliminary clearance rate of 81.5 percent, identical to last week’s result.

The Graph

The Preliminary Numbers

The Analysis

Next week will provide a huge test of demand as auction volumes will swell in our two largest capital cities. Melbourne is expected to host 1,550 auctions, and in Sydney, 1,142 auctions are scheduled. The Brisbane and Adelaide markets are also expecting to see a boost in supply.

Sydney’s anaemic supply coupled with robust demand continues to produce the result you would expect. Here’s a chart from CoreLogic showing capital city home value changes for the past week, month, quarter, and year:

Here’s a few noteworthy observations: The Brisbane market has just picked up significantly, with nearly a third of its annual price growth coming in the past month alone. Perth is experiencing just the opposite. Nearly a third of its price decline over the past year has occurred in the last four weeks.

What It Means For Investors

It’s hard to find a reason why at the current rate Sydney price growth will not exceed 10 or perhaps even 15 percent in 2017. At some point regulators will step it to tinker with the investor market. Let’s keep our fingers crossed that they tread lightly and don’t turn the Aussie dream into a nightmare for many first home buyers.

Or maybe some tough love is exactly what we need from our regulators right now. Former government economic advisor, John Adams, recently said that without it, we’re headed for an “economic Armageddon.” To ensure “a mild controlled economic recession”, he prescribes a cut to investor tax incentives, a reduction in welfare handouts and an RBA cash rate increase. Without it, he believes we’re headed for a “devastating depression.” You can read his “seven signs” here.

It appears that roughly a third of our readers agree, having suggested in our recent poll one of those same solutions to the issue of housing affordability. A near-equal percentage disagree, hoping the government will keep their hands off and let the market sort itself out.

Who will end up being right? Time will tell. In the meantime, make sure you educate yourself to manage risk wisely.

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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.