Australian property auction clearance rates just hit fresh lows

Nigel Killeen / ContributorLightning strikes in Melbourne, Australia.
  • Australian auction clearance rates have fallen to the lowest level since late 2015.
  • Less than 60% of auctions in Melbourne cleared last week, the lowest level in over four years. Sydney, too, recorded a rate below 60%.
  • Auction clearance rates have a reasonable relationship in predicting annual movements in home prices.

For an indicator as close to real-time as you can get, many view auction clearance rates are a pretty good guide as to what’s happening in Australia’s housing market, including the outlook for prices.

When they’re up, market conditions are strong, and vice versa.

Well, if the latest figures from CoreLogic are anything to go by, things are currently pretty weak, especially in Sydney and Melbourne.

Both saw clearance rates fall below 60% last week, leaving the combined capitals figure at the lowest level since late 2015.

CoreLogic

“A total of 2,279 auctions were held across combined capital cities, returning a final clearance rate of 58.2%, the lowest clearance rate seen since late 2015,” CoreLogic said.

“Over the previous week, 2,311 homes were taken to auction and a clearance rate of 62.1% was recorded, while this time last year, the clearance rate was much stronger with 72.8% of the 2,409 auctions returning a successful result.”

Mirroring recent price data, the decline was led by Melbourne and Sydney, Australia’s largest and most expensive housing markets.

Melbourne’s result, in contrast to those seen in Sydney recently, was especially weak.

“Melbourne’s final clearance rate dropped to 59.8% this week across 1,099 auctions, making it the lowest clearance rate the city has seen since Easter 2014.

“In comparison, 1,144 homes were taken to auction over the previous week, returning a clearance rate of 63.7%.

As well as being the weakest result in over four years, it was also well below the 75% level in the same week in 2017.

Sydney, too, put in a soft showing compared to a year earlier.

“Sydney’s final auction clearance rate fell to 57.5% across 787 auctions last week, down from 63.1% across 797 auctions over the previous week,” CoreLogic said.

“Over the same week last year, 960 homes went to auction and a clearance rate of 74.5% was recorded.”

The slowdown in Sydney and Melbourne coincides with the introduction of tighter lending standards, especially for interest-only mortgage loans, introduced in early 2017.

Affordability constraints, diminished activity from local and foreign investors, along with a general cooling in sentiment towards the outlook for prices, are other factors that have contributed to the recent pullback in prices.

CoreLogic

Across the smaller capitals, the performance was more varied during the week, fitting with the divergence in price movements in Sydney and Melbourne compared to other parts of the country in recent months.

Clearance rates rose in Canberra, Perth and Tasmania but fell modestly in Adelaide and Brisbane.

However, even with the mixed performance, it still wasn’t enough to offset the drag caused by Sydney and Melbourne.

The sheer size of these markets regularly dictates nationwide housing market indicators, including prices.

Indeed, the reason why Australian home prices are now lower than a year ago largely reflects recent weakness in these two cities. Prices are already down in annualised terms in Sydney, with growth in Melbourne quickly heading in that direction too.

Given the relationship that exists between auction clearance rates and annual price growth, the results from last week suggest further falls in Sydney and Melbourne could be on the way.

With most housing indicators continuing to weaken, including a sharp, investor-led drop in housing finance in March, economists at ANZ Bank are watching developments in auction clearance rates closely given they are a timely indicator of what is happening in the housing market.

“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 said.

“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.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.