Australian auction clearance rates weaken again as home loan growth slows

Julie Dermansky/Corbis via Getty Images
  • Australian auction clearance rates weakened last week, according to preliminary data released by CoreLogic.
  • Sydney and Melbourne both recorded preliminary results in the low 60% region, hinting that final rates may come in below 60% when released later in the week.
  • ANZ Bank thinks weaker housing credit growth has been a factor behind behind the reversal in clearance rates and prices seen in recent months.

Australian auction clearance rates softened last week, adding to a long list of housing market indicators that suggest recent weakness will persist for some time yet.

According to CoreLogic, a preliminary combined capital city clearance rate of 61.0% was recorded, below the 63.5% preliminary figure released one week earlier.

The number of homes that went under the hammer was down marginally to 2,245 from 2,311 in the previous week. It was also below the 2,409 level seen in the same corresponding week one year ago where 72.8% of homes sold.

Of the 2,245 auctions held, CoreLogic said it received results from 1,767. Within that figure, 1,081 sold while 686 failed to clear.

Continuing the recent trend, CoreLogic said a greater proportion of apartments sold compared to houses last week, standing at 63.6% and 59.8% respectively.

CoreLogic

By individual capital city market, preliminary clearance rates both fell in Melbourne and Sydney.

“In Melbourne, Australia‚Äôs largest auction market, a preliminary auction clearance rate of 61.2% was recorded across 1,090 auctions,” CoreLogic said.

That was down on the 63.5% preliminary reading of a week earlier when 1,144 auctions took place.

It was a similar story for Sydney where a preliminary clearance rate of 62.5% was recorded from 767 auctions held, down from 66.9% one week earlier when 797 properties went under the hammer.

Given the large number of unreported results in both cities, and the tendency of final clearance rates to be revised lower as late, often unsuccessful results, are reported to the group, CoreLogic says there’s a risk that both Sydney and Melbourne will see final clearance rates fall below 60% when updated figures are released later in the week.

“It’s highly likely they will be revised lower, with both Sydney and Melbourne clearance rates potentially falling below the 60% mark,” the group said.

In the prior week, Sydney and Melbourne recorded final clearance rates of 62.5% and 63.7% respectively. That left the final combined capital city clearance rate for the week at 62.1%.

Outside of Australia’s largest auction markets, preliminary clearance rates fell in Brisbane but rose modestly in Adelaide, Perth and Canberra.

With most housing indicators continuing to weaken, including a sharp drop in housing finance in March on the back of weaker loan growth to investors, ANZ Bank’s Australian economics team are watching developments in auction clearance rates closely given they are a timely indicator of what is happening in the housing market.

“We are currently very focused on the housing market, since a slump in house prices would pose a considerable threat to our outlook for the economy,” the bank said in a note released on Friday.

On the recent decline in auction clearance rates back towards the lows seen late last year, captured in the chart below from CoreLogic, ANZ says weaker housing credit growth is likely a factor.

CoreLogic

“It is difficult to argue that the weakness in the housing market over March and April was entirely a quirk of holiday timing rather than something more fundamental,” ANZ says.

“A tightening in credit conditions stands as the likely culprit. The sharp drop in investor lending in March supports this view.”

ANZ says the key question yet to be answered is whether the softness in home loan lending, likely contributing to the reversal in clearance rates in recent months, is reflective of procedural changes, such as a longer list of questions for borrowers to answer, or whether it signals a more significant tightening in credit availability.

“We note that since APRA announced the removal of the 10% cap in the growth rate of investor loans there have been reports of a lowering in interest rates for investors by a number of lenders,” the bank says.

“If this becomes widespread, it would suggest the tightening has been procedural more than anything else.

“In this case, after a period of adjustment to the new procedures, we should see a stabilisation in the market — especially if the cutting of investor borrowing rates broadens.”

However, until that question is answered, ANZ says it’s views on credit availability and home prices will continue to be dictated by changes in clearance rates.

In the interim, the softness in clearance rates reported last week points to the likelihood that price weakness across the country, especially in Sydney and Melbourne, will likely persist in the near-term.

Markets will get further clarification on that front later today with CoreLogic set to release weekly price data for Australia’s five mainland state capitals.

Prices have been trending lower in Sydney and Melbourne recently, coinciding with a sharp increase in property listings in both cities.

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