What is really happening with auction clearance rates and what does it mean?
If you’ve been watching the property results lately you can’t help but notice that the auction clearance rates have been quite low, in fact, last week in Melbourne, the average clearance rate was 41.6% with some areas such as the inner east falling below 40%!
But what does all this mean? is it really as bad as what the media make it out to be? It really depends, read on and I’ll try to explain my view on the current market play.
Auction clearance rates don’t really give us the full picture but it does give us a very important one. Over the last few weeks there has been a slide in activity in the auction markets, in fact, last weekend (20/10/2018) the clearance rate dropped below 50%! It’s really quite a remarkable set of circumstances because the housing market fundamentals are still quite strong according to the Australian Bureau of Statistics which has an indicated a very strong Aussie economy, however, even though we don’t have the same issues as when the GFC hit, the auction results tracking at the lowest levels since the GFC!
“It appears that buyers have just decided that they will not engage at the same levels as recent years.”
So what’s going on? It appears that buyers have just decided that they will not engage at the same levels as recent years, it’s really a confidence issue with sentiment driving the market at the moment because the fear just doesn’t reflect the underlying fundamentals and is becoming a self-fulfilling prophecy!
This poses the question, should you really be selling your property by auction? The benchmark for competition is around 60% clearance rate (competition is low), anything below this Really means there is little or no competition which means lower prices so it may not be worth the effort and expense of going to auction?
The only factor really impacting the market at the moment is the reduced lending from banks, if you restrict lending to the market you are putting downward pressure on prices and this also becomes self-fulfilling.
Taking a closer look at the market in Melbourne, quality is still winning out with high-quality properties still doing reasonably well, however, with lower auction numbers we do see more volatility in the marketplace.
“Ultimately the current market is really exhibiting a major lack in confidence that doesn’t make a great deal of sense.”
The Inner East, which normally performs well this time of year with the upper market properties, was hit pretty hard with very low clearance rates as seen in the chart.
Melbourne Auction Clearance Rates - 21 Oct 2018
Interestingly enough units are actually performing better than houses especially in the inner urban suburbs possibly fueled by first home buyers. Ultimately the current market is really exhibiting a major lack in confidence that doesn’t make a great deal of sense, previous down markets have been driven by high unemployment and high-interest rates but we have none of that at the moment, it’s actually the total opposite! quite possibly people are talking themselves into a downturn (of course the media doesn’t help either) it could very well take the market some time to regain its confidence but I guess we’ll have to wait and see.
Max Pisano is the Principal of MP Estate Agents and the author of “The Ultimate Guide To Off Market Property Sales” get your free copy emailed to you by entering your details below.