Is Momentum About to Shift Again?

Results for week ending March 6

After a month of rising clearance rates, our capital cities just took a dive back below the 70 percent mark, offering up a combined clearance rate of 68.1 percent. Weaker sales volume further highlighted the decline in buyer sentiment, as there were 500 fewer homes brought to auction compared to last week.

The Stats

Canberra was the big winner with 71.4 percent of auctions closing successfully, on steady volume.

Melbourne was the only other city to post a preliminary reading above 70 percent, with 70.6 percent of a total of 1,218 auctions clearing. This reading represents a drop of four points, on nearly 100 fewer auctions.

Sydney posted a result of 68.6 percent, although the City, Inner South, Ryde and the Northern Beaches all remained strong with figures in the high 70s or low 80s. Overall, supply was considerably weaker, with only 684 auctions held.

Perth is looking dismal, with only 18.2 percent of initially reported auctions clearing.

The Graph

The Numbers

The Analysis

What can we make of the decline in both the number of buyers and the number of sellers?

The auction clearance rate reflects both the supply and demand in the market – buyers divided by sellers. If the clearance rate drops, while volume remains steady, it clearly reveals a decline in willing buyers, or demand. But what if the clearance rate drops while volume also declines? This reflects an even greater deterioration in buyer sentiment.

Let’s look at Sydney for example, which had a clearance rate of 68.6 percent on 684 auctions. That means 469 homes cleared. Had the same number of homes sold and the auction volume was the same as the previous week (919) the clearance rate would have only been 51 percent.

So although the clearance rate only fell by a few points (because fewer sellers came to market), the actual number of willing buyers fell significantly. When buyers are becoming more hesitant and sellers are remaining weary, it means that everyone is moving forward with caution.

Most of Melbourne and the prime suburbs of Sydney remain sellers markets, but are these latest auction numbers a sign of an impending momentum shift? We’ll need to wait a few weeks to find out.

What It Means For Investors

Victoria celebrates Labour day next week, so Melbourne investors can expect auction volumes to be lower as a result. But the market will heat back up the following week in the lead up to Easter. March 19 will be another “Super Saturday,” so if there eager buyers and sellers in the pipeline, you can expect to see them then.

We’re still in wait and see mode, but this week’s results do not bode well for buy, hold and hope investors. Perhaps all the talk about changes to negative gearing has spooked homebuyers. Perhaps bank capital controls continue to erode investors’ borrowing power.

Either way, the future may be the brightest for cashed-up buyers looking to enter the market.

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.