I’ll Be Home For Christmas

Results for week ending November 6. 

The combined capital cities clearance rate was 77.5 percent this week, buoyed by strong demand in Melbourne and Sydney where buyers make haste to sign contracts for a pre-Christmas settlement. It’s now been nearly four months since we’ve seen a nationwide clearance rate below 70 percent.

Total auction volume was back up to 2,490, after a Melbourne Cup reprieve last weekend, when just 2,253 homes went under the hammer. Over the same weekend one year ago, the number of auctions held was significantly higher at 2,947, but with a clearance rate of just 61.4 percent.

The City Stats

Auction volume in Sydney was 1,100, about 40 more than were held in the city last week. The clearance rate jumped to 82.1 percent, up from 80.5 percent reported over the previous weekend. Demand remains much stronger than the same time last year, when only 58.4 percent of 1,248 homes were taken to auction.

Melbourne’s auction activity increased significantly from last week, with 80.5 percent of 929 auctions clearing successfully. Last weekend, the city hosted only 632 auctions, having taken a breather for the Melbourne Cup festivities. Last year at this time, the clearance rate was 69.0 percent across 1,204 auctions.

The Graph

The Preliminary Numbers

The Analysis

Demand remains very strong as spring draws to a close and many buyers hope to make their purchases in time to be “home for Christmas.” The ongoing shortage of stock, when compared to last year, continues to stoke competition and drive prices higher.

As of the 31^st of October, Sydney and Melbourne dwelling values have increased 10.59 percent and 9.13 percent respectively, over the previous twelve months. Though Perth has declined 3.66 percent in the same period, the aggregate price growth of the five capital cities is 7.57 percent.

CoreLogic RP Data

What It Means For Investors

According to analysts at BlackRock Investments, Australia may lose its AAA credit rating as early as December, especially if the Government’s interim budget review shows signs that our politicians can’t plug the holes. A downgrade would decrease demand for Aussie bonds, leading to a fall in bond prices and a spike in yields. Higher bond yields will then work its way through to higher borrowing costs for consumers and investors.

While a December downgrade is unlikely, our politicians appear to have no intention of reigning in spending. This makes a lower credit rating inevitable. It seems to be no longer a matter of if, but when. Whenever that day comes, expect interest rates to rise, and property prices to fall.

Speaking of timing, SQM Research analysts predict that through 2017 house prices could still rise by another 18 percent in Sydney and 17 percent in Melbourne if the RBA cuts the cash rate again. Even if the RBA holds, they predict growth of 16 percent and 15 percent for the two cities, respectively. An oversupply should catch up with home prices by the end of next year though, leading to a bust sometime in 2018.

NAB’s not quite as bullish. According to its latest quarterly residential property survey, their analysts expect growth of only 0.4 percent nationally in 2017. Sydney and Melbourne prices are expected to flatten out, with growth of 0.1 percent and 0.3 percent next year, respectively.

Of course, no one really knows what the future holds. But while we wait to see, let’s pay homage to those who will sign contracts in the next few weeks, no matter what the cost:

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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.