The Market Reawakens, But Will There Be Enough Sellers?

Auction Results for week ending February 5, 2017.

The property market is awakening from its summer slumber as CoreLogic recorded 867 auctions across the combined capital cities, more than double last week’s result of 368. The preliminary clearance rate was 70.8 percent, compared to the previous week’s result of 71.6 percent.

The City Stats

Sydney appears to have been the top performer with a preliminary clearance rate of 78.1 percent. Vendors presented a total of 255 homes for sale at auction. Over the same weekend last year, volume was higher, when 313 auctions were held and the clearance rate was 75.0 percent.

Melbourne appears to have had an identical number of auctions to Sydney – 255. The preliminary clearance rate, however, is slightly lower, as 77.5 percent of sellers found successful bidders. This time last year, the results in Victoria’s capital were similar: 268 properties were auctioned with a clearance rate of 77.6 percent.

The Graph

The Preliminary Numbers

The Analysis

With auction volume in Sydney and Melbourne relatively low compared to this time last year, and with clearance rates already in the high 70’s, it’s looking like the market will pick up where it left off in December. The test will come as auction activity lifts in the coming weeks. Next week’s volume is expected to approach 1400, but will it be enough to meet demand?

According to CoreLogic, Australian capital city house prices spiked 10.9 percent in weighted terms through 2016. Obviously, most of that growth came from our two largest cities. Sydney home prices increased by 15.5 percent and the median price in Melbourne went up by 13.7 percent.

January is typically a slow month for real estate, but apparently not this year. CoreLogic has already reported a median house price increase of 1 percent in Sydney and 0.8 percent in Melbourne over the first month of 2017.

Property price growth rarely grinds to a halt after a year of stellar demand. Many economists expect momentum to slow on the east coast over the next year, though still manage gains of 5 to 7 percent by the end of 2017.

What It Means For Investors

While early signs point to a solid year ahead for home price growth, 2018 may be a different story. Mortgage debt in Australia has risen from 80 percent of GDP at the time of the GFC to 95 percent today. Sooner or later, growth in mortgage debt will slow down, unless wages rise or borrowing costs fall.

Speaking of borrowing costs, the RBA decided to leave the cash rate on hold today at 1.5 percent. Some say interest rates have hit the bottom, but an increasing number of economists believe we will see at least one or maybe two more rate cuts by the end of the year. They suggest that a falling U.S. Dollar and weak inflation here at home may force the RBA’s hand.

Investors should be cautious seeing an outlook for lower rates as an encouragement to speculate on further increases in home prices. Banks have already shown that they will be reluctant to lower mortgage interest rates as their capital requirements are increasing and profit outlooks diminishing. Furthermore, tax concessions for property investors will continue to be threatened by growing discontent with the unaffordability of housing. Lately, even Liberals in Canberra have been changing their tune on the merits of negative gearing and the CGT discount.

Proceed wisely, and be sure to educate yourself prior to buying real estate.

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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.