Horses For Courses

Date: 03/11/2015

Results for week ending November 1

As punters place their bets on which four-legged beasts will have the fastest legs in “the race that stops a nation,” investors ought to be more concerned with another contest: the latest auctions clearance rates.

Evidence is building that supply is now clearly outpacing demand.

The Stats

The Victorian capital’s property market typically slows to a crawl over the Melbourne Cup weekend, but that didn’t stop a record number of vendors trying to cash in on Saturday. The clearance rate dropped to 65.4 percent on a whopping 611 auctions. That’s nearly three times as many sellers as last year.

Reports from agents in Sydney suggest that vendors are setting more realistic reserves to meet the market. It’s a good thing, as sales still managed to fall to 63.5 percent on strong volume of 1,361.

Not a single capital city cleared 70 percent this week. Canberra came the closest; chalking up 68.7 percent on 130 reported auctions.

The Graph

The Numbers

	Sydney	Melbourne	Brisbane	Adelaide	Perth	Tasmania	Canberra
Clearance Rate	63.5%	65.4%	55.6%	58.1%	55.6%	33.3%	68.7%
Auctions	1,361	611	186	146	49	6	130

The Analysis

An auction clearance rate consistently in the 60s is a big change from twelve months ago. Should it remain at this level, prices should ease back, with stronger discounting on properties that don’t sell within 7 days of auction.

Keep in mind though; the auction schedule leading up to Christmas is busy to the point of saturation. If demand slips, then so will prices.

All eyes will most certainly be on the RBA, to see if they have an early Christmas present to kick the market along.

What It Means For Investors

As we round the third turn and approach the finish line for the year, what signs should investors be looking for? How far can auction clearance rates fall before prices begin to move backwards?

A Deutsche Bank economist suggests that history should be our guide. According to his research, it depends on the city.

In Sydney, the clearance rate to watch for is 45 percent. In Melbourne, the figure is closer to 55 percent. Those are the points at which he says we’ve seen a fall in prices in the past.

What’s your call? Will you place a bet or will you sit this race out?

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.