Supply Surge No Match For Feverish Demand

Auction Clearance Rate Results for Week Ending September 11.

This week we saw a modest surge in volume, but not enough to cut significantly into buyer demand. The combined capital city auction clearance rate eased slightly to 76.4 percent, down from 77.1 percent the prior week. Despite that small percentage drop, 84 more homes were sold this week than last.

There were a total of 2,026 auctions held, which is higher than last week when 1,899 properties went under the hammer. Over the same weekend one year ago, 2,654 capital city properties were auctioned, and 71.2 percent of those cleared successfully.

The Stats

Sydney continues to look strong as initial reports suggest that 80.0 percent of 720 auctions cleared successfully. Last week, 747 homes were brought to auction and the final clearance rate was 80.7 percent.

Melbourne appeared to keep pace, recording a preliminary clearance rate of 78.7 percent, only slightly lower than last week’s final result of 79.3 percent. Volume surged significantly to 978, up from 830 last week, yet still lower than the 1,189 auctions held one year ago.

Adelaide and Canberra continue to look hot with clearance rates in the mid to high 70’s.

The Graph

The Preliminary Numbers

The Analysis

Looking deeper into the nationwide stats, 1,890 properties were sold this time last year versus 1548 this week. While demand appears stronger this year when considering auction clearance rates, there were actually more buyers in the market last year. It’s just that the supply was higher then, which absorbed the demand. While clearance rates are high, the current market in terms of numbers of buyers is still somewhat subdued when compared to 2015.

As expected, the slight increase in supply in Melbourne and Sydney barely had an impact on auction clearance rates. In terms of numbers of homes sold at auction, Sydney had 27 fewer successful bidders compared to the previous week.

In contrast, Melbourne’s sales soared to 771 from 658 last week. That’s 113 more buyers. Considering all capital cities combined sold 84 more properties than last week, Melbourne was the clear standout, with Sydney dragging down the total number sold.

Over the coming weekend, the number of expected auctions is lower in Melbourne and only slightly higher in Sydney. Expect another similar result next week as spring fever fully sets in.

What It Means For Investors

With borrowing costs at an all-time low, buy and hold speculative investors are pouring back into the property market. According to the ABS, new approvals for property investment lending rose 0.5 percent in July. But the jury’s still out on how much owner occupiers are willing to pay for a home to live in. The number of new loans approved for owner occupiers in July actually fell by 4.2 percent.

Outgoing RBA Chief Glenn Stevens recently expressed “some discomfort” with rising property prices in Sydney, but said it’s a mixed bag across the country.

“Prices are probably rising smartly in some areas, but in other areas they’re not, and in some cities in the country, they’re falling… it’s not without risk, and it certainly gives me some discomfort, but then we’re balancing that against the other obligations we have to pursue.”

Those “other obligations” are to try to stimulate our slowing economy and to boost wage growth. If incoming RBA governor Phillip Lowe can get people earning more, then maybe $1 million for the average home won’t sound like very much. Of course, the buying power of previous investor gains would be lost through inflation, but who cares about them anyway.

If the RBA can’t boost wages significantly, then the only other way for the average person to be able to afford the average home is for property prices to fall. Either way, I don’t see a bright future for buy and hold speculators, especially those entering the market at today’s prices.

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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.