Home Prices Retreat This Week With Boost in Supply

Property Market Update for Week Ending 30 July 2017 

Key Highlights:

• Auction volume rose again this week.
• Sydney posted its first preliminary clearance rate below 70 percent since April 2016.
• House prices fell this week in every capital city, except Adelaide.
• The RBA left the cash rate on hold at 1.50 percent.
• New home sales across the country declined sharply in June.

This Week’s Preliminary Auction Activity (Week Ending 30 July)

Auction volume increased this week with 1,957 homes on offer across the country, up from 1,748 last week. Last year at this time, only 1,610 properties were auctioned. Due to greater supply giving buyers more choice, it’s likely that the final clearance rate released later this week will be lower than last week’s.

With supply rising across Sydney, buyers pulled the clearance rate down, especially in the city’s South West. Expect this week’s preliminary result of 68 percent to end up even lower once all the results are counted.

Even though Melbourne appeared strong with a clearance rate of 77.2 percent, it’s important to note that last week’s preliminary result also appeared strong at 79.4 percent. By the end of the week, it had dropped to 73.8 percent after all reports were in.

Source: CoreLogic

Auction volume over the coming week is expected to drop back down closer to last week’s tally, somewhere in the 1600 to 1700 range. This should give a boost to clearance rates, and perhaps even sales prices.

Last Week’s Final Auction Results (Week Ending 23 July)

Sydney’s final clearance rate jumped back up above 70 percent for the first time in almost two months. Melbourne fell dramatically from last week’s preliminary count, ending just over 1 percentage point lower than the previous week’s final result.

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

Source: CoreLogic

Sydney’s Eastern Suburbs smashed it with a success rate of 90.0 percent, while Baulkham Hills and Hawkesbury couldn’t even clear above 40 percent. Melbourne’s sub-regions were a little more balanced, with the North East and Outer West looking strongest.

Source: CoreLogic

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

Recent Home Price Movements

I reported last week that home prices had been climbing dramatically week-on-week in our two largest capitals for about five weeks but then leveled off last week with rising auction volume. As was expected with another increase in supply this week, home prices retreated slightly, falling 0.25 percent in Sydney and down 0.14 percent in Melbourne.

With auction volume expected to be lower next week, it will be interesting to see if home prices bounce back with diminishing supply.

Source: CoreLogic

As you can see below in the monthly data from CoreLogic, those five weeks of growth amounted to July gains of 3.12 percent in Melbourne and 2.36 percent in Canberra. Sydney prices increased by 1.37 percent.

The biggest growth came from Adelaide units, which were up 5.55 percent.

(Click the image to enlarge it.)

Source: CoreLogic

Property Market Analysis

A sustained clearance rate anywhere in the 60s has traditionally been associated with relatively stable price movements. It’s not until the clearance rate drops into the 50s that prices begin to fall significantly. Unless something dramatic happens, we’ll likely see price growth flatten out for the time being.

The stark differences we’ve seen lately between preliminary auction reporting from agents and the final count that comes out later in the week illustrates how unreliable the preliminary agent reporting can be. When comparing Monday’s clearance rate report to the previous week, it’s best to compare to the previous week’s preliminary result to gain some insights on the direction of the weekly change. Then you can confirm the result later by comparing each week’s final results. Otherwise, as the saying goes, you’re comparing apples with oranges, and you risk being fooled by the embellished Monday morning headlines.

What It Means For Investors

The RBA met today and decided to leave the cash rate on hold at 1.50 percent. That was not a surprise considering Philip Lowe’s recent comments that further interest rate cuts could inflate asset prices and household debt beyond current record levels. I’m glad we’re all in agreement there.

Let’s hope he can resist the temptation to cut rates later this year, especially if the US dollar continues to weaken. The Aussie dollar remains strong relative to the Greenback, above 80 US cents at the time of this writing. That’s a pain for exporters and a thorn in the side of an RBA that’s seeking to lift wages.

The latest news from Housing Industry Association (HIA) may not bode well for tradie wages. It reported yesterday that sales of new homes across Australia fell 6.9 percent in June, even with sales up in Victoria and Western Australia. Seven percent is a sharp decline, erasing two months of gains and bringing the figure to its lowest point since 2013. New housing starts are a reflection of demand, especially from investors who have been hammered by tighter lending restrictions from APRA.

Another potential lending challenge exists in the way that banks are valuing properties. The latest report from CoreLogic on mortgage valuation activity reveals that more and more valuers are conducting desktop property inspections rather than internally or kerbside. CoreLogic calls this a “trend towards simplification and reducing turnaround times,” but investors may see it differently.

According to Jo Lindo, an agent in WA and also one of our Property Apprentices:

“This could have dramatic implications on bank valuations if it becomes an industry norm, especially for investment properties. The accuracy and quality of the valuation could be impacted and I am already seeing this with wide ranging valuations on similar properties, depending upon whether the valuer has seen the internals of the property or not.”

The risk for vendors, especially those selling a renovated property, is that the sale falls over prior to settlement if the bank valuation is overly conservative and comes back below the contract price. According to Jo, if you’re selling, you need to make sure your agent is doing everything possible to present the property well online, for example, with the latest and best photos. 

In Steve McKnight’s Property Apprenticeship course, you’ll find an entire Module on how to sell investment properties the smart way. Most investors delegate all responsibility for getting the sale to their agent and completely check out from the sales process. In Steve’s course, you’ll learn a sales system and marketing techniques that will empower you to manage your agent well and get the best possible price for your property.

If you’d like to learn more about our training options, set up a complimentary coaching session with me. We’ll start by reviewing your goals and strategy, and discuss whether you’re a good fit for one of our training programs.

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.