Australia's hottest housing markets are now clearly starting to cool

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Australian auction clearance rates continue to soften, hinting that the deceleration in price growth seen in recent months may continue in the period ahead.

Yes, the Spring selling season, at least compared to last year, is looking fairly meek.

According to data released by CoreLogic, a preliminary national auction clearance rate of 68.1% was recorded across Australia’s capitals last week, marginally below the 69.4% preliminary level reported in the previous week.

Given the tendency for preliminary figures to be revised lower, there’s a risk that the final clearance rate for the week — released on Thursday — could fall to levels not seen since early 2016.

Last week’s national final clearance rate stood at 66.3%, marginally above the 66.2% low reported in late September, the lowest level in the current cycle.

By individual capital, Melbourne continued to outperform all other areas of the country, although, in the low 70% region, there’s signs that it’s market is slowing too.

“Melbourne’s preliminary auction clearance rate was recorded at 72.1% this week, down from the recent high of 87.0% last week when volumes fell considerably (122),” said CoreLogic.

“This week, Melbourne was host to 1,111 auctions, similar to the same time last year when there were 1,114 Melbourne auctions held and 78.4% cleared.”

And, like Melbourne, Sydney’s property market is also continuing to cool compared to levels seen earlier this year.

“Sydney’s preliminary clearance rate this week was 67.2% across 591 auction results,” CoreLogic said.

“There were a total of 800 auctions held across the city, increasing from the 607 auctions last week when 64.9% cleared.

“Over the corresponding week last year, a slightly lower 816 auctions were held across Sydney and a clearance rate of 79.8% was recorded.”

Given the soft preliminary figure, there’s a reasonable possibility that Sydney’s final clearance rate could fall to the lowest level since late 2015 when it is released later in the week.

The current low in this cycle for Australia’s largest and most expensive city currently stands at 64.2% which was recorded in mid-September. Clearance rates in the city have now held below 70% for 11 consecutive weeks.

With clearance rates in Australia’s largest centres both weakening, it explains why the national clearance rate remains well below the 76.4% level reported in the same corresponding week in 2016.

Tighter macroprudential restrictions on investor and interest-only borrowing, along with affordability constraints, are now clearly acting to take the heat out of Australia’s hottest housing markets.

Of Australia’s other capitals, preliminary clearance rates fell in Adelaide, Perth, Hobart and Canberra but rose fractionally in Brisbane.

This table from CoreLogic shows how individual capital city’s fared last week.

Source: CoreLogic

The softening in auction clearance rates mirrors a slowdown in price growth over the past few months.

According to data released by CoreLogic last week, prices across the country rose by 0.2% in September following an unchanged reading in August, leaving the increase on a year earlier at 8%.

The group said that capital city prices rose by 0.3%, while those in regional areas rose by a smaller 0.1%.

For the quarter, prices across the nation’s capitals rose by 0.7% in average weighted terms, well below the recent cyclical peak of 3.5% seen in late 2016.

“This slowing in the combined capitals growth trend is heavily influenced by conditions across the Sydney market where capital gains have stalled,” said Tim Lawless, head of research at CoreLogic.

Prices in the harbour city fell by 0.1%, the first monthly decline in 17 months. At 0.2%, the quarterly increase was also the weakest since prices went backwards in early 2016.

Source: CoreLogic

That weak performance was partially offset by a strong 0.9% increase in Melbourne prices, leaving the increase over the quarter at 2.0%, second only to Hobart in terms of price growth.

However, with clearance rates in Melbourne now starting to soften, there’s a risk that price growth may slow further in the months ahead.

Lawless says that prices in Sydney and Melbourne will probably trend lower in late 2017 or early 2018, although he suggests that strong demand for housing, along with the likelihood that interest rates will remain at low levels, “will help to support a floor under housing prices going forward.”

Fitting with the recent softening in clearance rates, dwelling prices were flat across Australia’s five mainland state capitals last week in average weighted terms, according to updated data released by CoreLogic, leaving the increase over the past four weeks at 0.2%.

Prices rose by 0.2% in Brisbane and 0.1% in Melbourne during the week, offset by unchanged readings in Sydney and Adelaide and a 0.1% decline in Perth.

Over the past four weeks, prices rose by 0.7% in Melbourne while those in Sydney fell by 0.3%.

Source: CoreLogic

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