Tis The Season To Avoid Folly

Results for week ending December 13

The combined capital cities auction clearance rate improved slightly this week as determined buyers made their pre-holiday purchases on the final “Super Saturday” of the year.

The Stats

The preliminary numbers indicate that even the Sydney market may be stabilising, as the clearance rate rebounded over two points to 55.2 percent. Supply was down, with only 869 properties on offer.

Bear in mind that last week’s figures showed similar strength initially. Then the final numbers came in and brought the tally down to 52.9 percent. The same may hold true this week.

Melbourne bounced back to 65.7 percent. A total of 1,561 homes were brought to auction, down only slightly from 1,622 last week.

The weekend before Christmas is notoriously slow, but Melbourne has a record number of auctions, over 700, scheduled for this Saturday, December 19^th. It will be interesting to see if buyers show up.

Adelaide took a big hit this week, down nearly twenty points to 51.6 percent on higher volume.

The Graph

The Numbers

The Analysis

For the past few months of the busy spring selling season, demand has been falling sharply. But now Sydney and Melbourne may be showing early signs of levelling off. It’s yet to be seen whether this is due to a pre-holiday surge in buying activity or a result of fewer sellers in the market.

Either way, the smart money seems to be growing increasingly bearish on the real estate market. Professional money managers, spooked by the recent sharp declines in auction performance, are now shifting funds away from property into more conservative fixed income investments.

In an email from the Commonwealth Bank to private clients, money managers referenced falling auction clearance rates and warned, “That’s a big fall, and fast. Big falls, occurring quickly, send a pretty powerful signal to us from the market.”

Has the market bottomed out to consolidate in preparation for more growth, or will the New Year continue handing more power over to buyers? Only time will tell, but speculators beware.

What It Means For Investors

Merriam-Webster defines “folly” as “the lack of good sense or judgment.”

Even buyers lacking sense could have made money in many parts of Sydney and Melbourne over the past two years. But the folly-rewarding season of double-digit growth is likely over. We’re entering a new phase, where only the prudent will profit.

Now if only the world’s central bankers could avoid such folly. Keep an eye on the Federal Reserve’s interest rate decision later this week, and the subsequent response of the Australian dollar. Both will play into the RBA’s next decision come February. At this point, a lower cash rate is about all speculators have left to hope for.

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.