The Beat Goes On

Results for week ending October 16th, 2016.

Buyers kept pace with a boost in auction numbers this week, as the preliminary combined capital city clearance rate came in at 77.9 percent. Sellers presented 2,405 homes at auction this weekend, still far lower than last year’s figure of 2,858, but a 5 percent bump from last weekend when 2,290 homes were taken to auction. Last week’s final clearance was 76.4 percent.

The City Stats

Sydney buyers continue to lead the way with a preliminary auction clearance rate of 83.3 percent, on volume of 881 auctions. The final clearance rate last week was 79.8 percent, when 816 homes were presented at auction. Volume remains considerably lower than one year ago, when 1,105 homes in Sydney were auctioned and 63.7 percent were successful. The last time Sydney recorded a result below 70 percent was about six and a half months ago.

Melbourne continues to have the most sellers, where 1,179 homes were auctioned over the weekend. The clearance rate was 78.5 percent this week, based on preliminary reports. Last week’s final result of 78.4 percent was almost identical to this week. One year ago, Melbourne was host to 1,398 auctions, and 72.7 percent of them found successful bidders.

Buyers in Canberra looked strong again this week, posting a clearance rate of 83.9 percent on volume of 74 auctions. This only slightly lower than last week’s result of 85.0 percent, which was the highest for the year so far.

The Graph

The Preliminary Numbers

The Analysis

There’s no end in sight for rising home prices in Sydney. According to Domain, the city recorded a median auction price of $1,222,500 this week, up from $1,196,500 last weekend. That’s 6.3 percent higher than the $1.15 million recorded over the same weekend last year. Over 100 fewer properties are scheduled to be auctioned next weekend in Sydney, so expect a spike in the clearance rate.

Looking at total number of sales in Sydney, the demand is about the same as last year: 734 sold this week, 703 last week, and 704 one year ago. The difference this year is of course the short supply. With the same level of demand, one year ago, price growth was beginning to stall. With fewer sellers this year, prices are still rising.

Likewise in Melbourne, relatively low auction numbers continue to favour sellers, with strong spring demand fuelling stiff competition between buyers. Over 1,300 homes are scheduled next weekend in the pre-Cup Super-Saturday rush, so expect frustrated buyers to be out in full force hoping to capitalise on more choice.

Looking closer at Melbourne’s sales, 926 homes were sold at auction this week, 901 last week, and 1023 one year ago. Since next week’s volume will be about the same as one year ago, next week’s clearance rate will be a very telling sign of demand in the city, relative to last year.

What It Means For Investors

The RBA issued a warning to investors last week that a storm could be brewing in the over-supplied apartment market. Nearly 40,000 new units will be built over the next two years in Melbourne, Brisbane and Sydney. With so much stock in the pipeline, the RBA believes apartment values may have further to fall. Falling prices could lead to buyer defaults, leaving developers high and dry, and banks holding huge losses.

So far, settlement failures have remained low, but many lending valuations are already coming in below their contract prices, which means investors must scramble for cash, and end up taking longer to settle. The RBA is most concerned about the Brisbane and Melbourne apartment markets where apartment prices and rents are weaker and vacancies are higher.

Sydney buyers seem un-phased as apartment sales there continue soaring. Mostly Asian buyers are literally queuing up to get a piece of the action. On Saturday, 230 first-stage apartments in the 408-unit “Park One” project in Macquarie Park sold out in a matter of hours. Farther south, in Miranda, Galileo Group sold half of the 100 apartments in its stage two launch of “Palisade Miranda.”

Keep your eye on this segment of the market. As long as the banks can weather the storm and absorb losses, the rest of the housing market should carry on just fine, barring of course a catastrophe overseas. If, however, apartment values fall more than 25 percent, banks could face a mini-crisis that might negatively impact the amount of cash available for lending to all homebuyers.

Who could have known that Sonny and Cher were singing about the 2016 Australian property market, all the way back in 1967?

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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.