Hesitant Sellers Give Winter Boost
Results for week ending July 10
The auction clearance rate for the combined capital cities rose again this week, as demand continues to outpace this winter’s supply lull.
Based on preliminary reporting, 72.0 percent of sellers nationwide found successful bidders. Auction volume increased to 1,365, up from last week’s election weekend low of 841. Even after the boost in activity, supply remains about 35 percent lower than the same time last year.
The Stats
Sydney buyers continue to lead the charge, posting a preliminary clearance rate of 79.0 percent. This appears to be a slight improvement on last week’s final reporting of 78.4 percent. Vendors brought 495 homes to auction this week, up from 365 on election weekend.
Melbourne continues to reach for a result in the 70s. The preliminary clearance rate was 71.9 percent on 603 auctions. Last week’s figures, which initially appeared to be in the 70s, fell to 66.7 percent, once all reporting was complete.
Adelaide’s clearance rate, which this week appears to be 72.3 percent, also fell considerably last week after the dust had settled. Last week’s final result was 62.3 percent.
The Graph
The Preliminary Numbers
Sydney | Melbourne | Brisbane | Adelaide | Perth | Tasmania | Canberra | |
Clearance Rate | 79.0% | 71.9% | 44.0% | 72.3% | 55.6% | 33.3% | 76.0% |
Auctions | 495 | 603 | 112 | 68 | 9 | 6 | 59 |
The Analysis
Sydney’s current clearance rate in the high 70s is consistent with last winter’s performance in the months leading up to the 2015 price peak. This year, however, supply is lower, which means there are a fewer number of buyers required to produce the same result.
So with Sydney’s clearance rate booming again, and Melbourne not far behind, why are there so few sellers? Most likely, the reason is because so many homeowners sold last year. Supply was brought forward by 2015’s strong demand and high prices. It may take a few months for the market to catch back up.
We may also see supply numbers rise now that the federal election is behind us. Some sellers could have been holding out just in case Labor was elected. That way, they could have the option of renting out an existing property grandfathered in to negative gearing. With a Coalition government firmly in place, these sellers may now come to market.
What It Means For Investors
Rising supply is generally associated with falling prices, unless of course demand increases accordingly. We’ll have to wait until September to see whether the current rally in our largest capital cities has legs.
According to a study by construction industry analyst and forecaster, BIS Shrapnel, property prices will “fall” in all capital cities over the next three years. They expect an oversupply of apartments, stalling population growth and rising vacancy rates to shed up to 10 percent off of home prices in real terms by June 2019. In nominal terms, ignoring inflation, that basically means we’re entering a flat market.
Their findings highlight an important point. Holding negatively geared real estate in a flat market is akin to storing cash in a term deposit that pays negative interest rates. It not only diminishes your cash flow; your wealth also loses buying power. For the sake of the ponzi borrowers, let’s hope property values start growing again beyond 2019, and at a greater rate than inflation.
For the historical data of weekly auction clearance rates, click here.
Comments
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Hi Jason,
An earlier look at this BIS shrapnel prediction showed that they appeared to use the over-supply of apartments to indicate that the whole property market would go “off the boil”.
Unfortunately, as I don’t subscribe to the Australian, I cannot read that link again, so can’t check their exact words…..
But Jason, let me ask – do you see validity in their theory or prediction that the whole property market will fall because apartments in inner city areas are over-supplied?
Benny
If you search BIS Shrapnel in google news you’ll see other articles on the same report. In the Australian, the writer sensationalises the story a bit.
In reality, they expect homes in Sydney, Melbourne and Adelaide “to sustain falls of 2 per cent in nominal terms.” The 10 percent drop is in real terms, including a loss of buying power through inflation. So I wouldn’t quite call that a fall. BIS Shrapnel essentially expects prices to be flat, or slightly down.
To answer your question, yes I do believe that’s a reasonable assessment. We can expect falls in prices of apartments to impact the broader property market to some degree, mainly due to settlement risk and how the lending market could be impacted.
I think 2 percent over three years is optimistic. I’d consider 3-4 percent per year for three years as a pretty good outcome considering the growth of the last few years.
Of course, if the RBA drops interest rates to 1 percent or lower and APRA stays out of the way, prices would likely go up.