Auction clearance rates are often seen as an indicator of property market health. But it’s certainly not the only benchmark to consider to get a feel for how the market is faring.
The latest figures from property research group CoreLogic show a nationwide auction clearance rate of 60.3% for April. It means just six out of ten homes listed for sale by auction actually sold under the hammer. That may sound low however it’s not a definitive sign that the property market is in the doldrums. We spoke with Tim Lawless, Research Director Asia Pacific, at CoreLogic to find out why.
Auctions aren’t universally popular
To begin with, only a handful of Australian cities have a strong auction culture. Tim explains that Sydney, Melbourne and Canberra are the mainstays of auction sales. In cities like Brisbane, only around 5% of homes were sold at auction last year, a figure that drops to just 2% of homes in Perth.
Tim adds, “Even in Sydney and Melbourne, auctions aren’t as popular as people think. In 2017 for instance, auctions sales accounted for just 21% of homes sold in Sydney, 32% of Melbourne sales, and 29% of properties sold in Canberra.”
There’s a good reason why private treaty accounts the bulk of home sales. Auctions can be well-suited to properties that are harder to place a clear value on, and Tim says auctions tend to be more popular for homes in the premium end of the market as well as for niche or unique properties. Houses are far more frequently sold at auction than apartments, and Tim adds, “In less expensive markets, where there may be little to differentiate properties, opting for sale by auction is much less popular.”
This being the case, Tim notes that auction clearance rates can be a timely indicator of market health in the areas where auctions comprise a large proportion of listings (Sydney, Melbourne and Canberra), but are less relevant in other markets where most properties are sold by private treaty. And in areas where auctions are less popular for auctions, clearance rates are most relevant to the top end of the market.
Auction clearance rates never hit 100%
It’s also important to put auction clearance rates in perspective – they don’t work the same way as school exam results.
For starters, Tim notes, “There has never been a case where 100% of properties have sold at auction.” And he adds that even during the peak of the market, clearance rates only reached the low 90% level.
Bear in mind too that some homes listed for sale by auction are sold before auction day. “If clearance rates are down, vendors may be more willing to accept a reasonable offer prior to auction,” explains Tim.
So what can we learn from auction clearance rates?
Tim believes auction clearance rates can still be something of a barometer for market health.
In Sydney, for example, the last week of April saw only 56% of homes sold under the hammer, and this reflects CoreLogic figures, which show Sydney values have dropped 4.3% since July 2017.
In Canberra, on the other hand, auction clearance rates are holding firm in the high-60% range. Tim explains this saying, “Values have trended slightly higher in Canberra, where buyers are benefitting from higher wages growth, which is helping with affordability, and housing demand remains strong thanks to a pick-up in migration rates.”
Other measures of property market health
Given that the majority of homes are sold by private treaty, there is a wealth of other information that can be used to determine the health of the market in your patch.
Your Aussie Broker can provide complimentary copies of CoreLogic reports when you make an appointment, and these include a number of figures worth honing in on.
“Days on market” is a useful guide of how long properties are taking to sell. In Hobart, where the market is very strong right now, it takes an average of just 26 days to sell a home – a figure Tim says is a record low for the city. By contrast, in Brisbane, it currently takes an average of 53 days for a buyer to come along.
Another useful metric is the “average rate of vendor discounting”. This shows how much the vendor had to cut the listed price in order to secure a sale. In Sydney, buyers are pocketing an average discount of 5.6%. However in Darwin, where Tim describes the market as “really tough”, the average discount is 10.8%.
Gauging the health of the market doesn’t have to mean poring over numbers. Tim explains, “Look around at how many homes are for sale in your area. If the listing numbers are high, it takes the urgency out of the market and this can give home buyers more opportunities for negotiation.”
Talk to your Aussie Broker for your free copy of CoreLogic’s property market reports.
You may also be interested in Australian Property Market Outlook – Quarter One 2018, An insider’s look at buying at auction and Tackle the challenges of getting into the property market with the help of an Aussie broker.