Auction Clearance Rates – what do they actually show us?

When analysing the property market, one of the key figures to emerge from the weekend selling activity is the auction clearance rate.

Publishers and news outlets closely scrutinise clearance rates to see what it can tell us about the state of the market, and rightly so. Industry professionals and home buyers are intrigued by clearance rates.

There are even multiple providers of clearance rate data who all offer their own numbers, which can occasionally contradict each other.

Which begs the question: how is the auction clearance rate calculated?

The Real Estate Institute of Victoria (REIV) says it calculates clearance rates by “adding up the properties sold before the auction, sales under the hammer, sales after the auction but on the same day and sales the day after the auction and dividing them by the number of auctions reported.”

It sounds relatively simple but recently there has been debate about whether the clearance rate actually represents anything substantial at all.

Many property industry professionals and commentators are using auction results as the sole indicator of how well the market is performing when in fact there are a number of other variables that should be factored in.

Property guru Terry Ryder rightly recently pointed out “Auctions account for a tiny share of residential property sales and are mostly at the upper end. They say nothing about the mainstream market, where the bulk of sales occur.”

He also points out that “Multimillion-dollar sales in the prestige suburbs of Sydney and Melbourne are largely irrelevant to an informed discussion of market trends.”

The key variance seems to be in instances where properties have been passed in. Some include these properties in their calculations whereas others do not. The fact that different organisations calculate their figures slightly differently is also worth consideration.

Clearance rates should really be treated as addition to market sentiment that can help analysts and economists gauge the state of the market rather than the be all and end all.