New Credit Keeps Pouring Into Housing

Auction Clearance Rate Results for Week Ending September 4.

Volume was back down this week, pushing the combined capital city clearance rate up to a year-to-date high of 78.4 percent. A total of 1,858 homes were taken to auction, down from 2,153 a week ago. Last week’s final clearance rate was 74.5 percent, a little lower than preliminary reporting initially suggested.

The Stats

Sydney appears to have surged higher yet again with early reports showing a clearance rate of 83.9 percent, on volume of 715. Last week, 788 homes were brought to auction and the final numbers show that 78.5 percent of them cleared successfully.

Melbourne saw a moderate decline in the number of auctions held this week, down to 826 from 1,060 last week. As expected, the preliminary clearance rate was higher at 79.3 percent. Last week’s final result was 77.4 percent.

Adelaide also gave a strong preliminary showing with 80.7 percent of auctions successful. Supply was low, as only 73 homes were auctioned.

Perth looked exceptionally weak with a clearance rate of 16.7 percent. Likewise, in Tasmania, five of seven results have been reported, but none were successful.

The Graph

The Preliminary Numbers

The Analysis

Supply over the coming weekend is expected to increase slightly, but not by enough to put a dent in the current uptrend of clearance rates. There are around 90 more auctions scheduled for Melbourne, but about 40 less scheduled for Sydney. Demand appears to be showing no signs of pulling up. Expect another strong upcoming weekend for our two largest capital cities.

As you can see in CoreLogic’s chart below, the combined capital city clearance rate in 2015 reached a peak of about 80 percent. If the current trend continues, we can expect to test this high within the next few weeks.

What It Means For Investors

Unfortunately for the RBA, the United States just posted a lacklustre jobs report, showing 30,000 fewer jobs added than economists had hoped. That all but rules out a Fed rate hike, which means the RBA will need to cut rates again if it intends to give a boost to our exporters by devaluing the Aussie dollar.

We all know what that means for the property market. APRA’s chairman recently said the regulator would not step in to tighten up lending requirements for investors. But don’t forget there are other ways to redirect credit away from housing, namely by adjusting the risk weighting of certain mortgages. I wrote about this last year in “3 Ways APRA Can Slow Down the Real Estate Market.”

This whole situation sort of reminds me of my young children. I’m still trying to teach them that they can’t have every single thing their way. The RBA wants to stimulate the economy, devalue our currency, stop home prices from rising, AND keep banks profitable. The problem is banks can’t remain profitable unless housing debt keeps growing. If housing debt keeps growing, property values will likely keep rising.

When the RBA finally realises they can’t have it all, which of their wants do you think will be sacrificed?

UPDATE: The RBA left the cash rate on hold today, as expected, at 1.5 percent. This was Glenn Stevens’ final board meeting as Governor. Deputy Governor Philip Lowe will take over on September 18.

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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.