Auction market conditions remain bleak in Australia's largest cities

Photo: Ryan Pierse/ Getty Images.
  • Australian auction clearance rates continued to edge lower last week as more properties went under the hammer.
  • A sharp increase in auction activity saw Melbourne’s preliminary clearance rate tumble to 43.5%. Given the extremely low preliminary estimate, the final clearance rate could be revised down to 40% or lower later in the week, leaving it at fresh multi-year lows.
  • After hitting a decade-low in the prior week, Sydney’s final clearance rate could also hit fresh lows again this week.
  • Preliminary clearance rates improved in Adelaide, Brisbane, Perth and Canberra. Adelaide’s market has consistently outperformed the national average in recent months.

Australian auction clearance rates continued to edge lower last week as more properties went under the hammer.

According to preliminary data released by CoreLogic, just 45.5% of reported results cleared across Australia’s capital cities last week, below the 46.8% preliminary estimate released seven days earlier.

It was the fourth consecutive week the preliminary estimate was lower than that reported seven days earlier.

Of the 2,753 homes that went under the hammer, CoreLogic received results from 2,009, representing a reporting rate of 72.9%, an improvement on the 70.2% level seen a week earlier.

A total 912 homes sold before, at or prior to auction while 1,097 failed to clear, including 227 that were withdrawn prior to going to market.

Despite the stronger reporting rate, it’s likely final figures for the week released on Thursday will show a steep downward revision, perhaps to the lowest level seen in the current cycle.

CoreLogic

Preliminary clearance rates tend to be revised lower as late, often unsuccessful results, are reported by agents.

In the prior week, CoreLogic’s final estimate was revised down from 46.8% to 43.3%, just off the six-year low of 42.3% struck in early November. Given last week’s preliminary estimate, there’s a good chance the final figure could come in below the level seen at the start of the month.

One year ago, Australia’s final combined capitals clearance rate stood at 60.9% despite a larger 3,390 properties going under the hammer.

By type of property, CoreLogic said preliminary clearance rates for houses and apartments were much the same last week, sitting at 45.4% and 45.6% respectively. In recent months, clearance rates for apartments have usually outperformed those for houses by quite some margin, partially reflecting the impact of tighter lending standards on more expensive homes.

By capital city, a sharp increase in auction activity saw Melbourne’s preliminary clearance rate tumble to 43.5%, well below the 48.3% level reported seven days earlier.

A total 1,411 homes went under the hammer in the city, below the 1,141 level of a week earlier. CoreLogic received results from 1,116 of those, representing a reporting rate of 79.1%, marginally below the 79.3% level seven days earlier.

Given the extremely low preliminary estimate, Melbourne’s final clearance rate could be revised down to 40% or lower later in the week, leaving it at fresh multi-year lows.

In the same week a year ago, Melbourne hosted 1,732 auctions and recorded a final clearance rate of 66.9%.

The current clearance rate is consistent with further price declines in Melbourne, already the capital city that has experienced the largest drop in median prices so far in 2018.

CoreLogic

Helping to offset the weakness seen in Melbourne, Sydney’s preliminary clearance rate was almost unchanged from seven days earlier, standing at 48.5% from 48.4% a week earlier.

CoreLogic received results from 571 of the 874 auctions that took place in Australia’s largest and most expensive city, or 65.3%. That was a slight improvement on the 64.2% reporting rate seen seven days earlier.

In the prior week Sydney’s preliminary clearance rate was revised down to sow a final figure of 42.1%, the lowest level since December 2008. A similar outcome is likely to be seen again this week.

One year ago, and reflecting that Sydney’s housing downturn started earlier than in Melbourne, a final clearance rate of 54.8% was recorded from 1,061 auctions held.

Sydney’s auction market has continued to weaken over the past year, just not as much as conditions in Melbourne.

More broadly, sitting in the low to mid-40% range, Garteh Aird, Senior Economist at the Commonwealth Bank, says the levels are consistent with further price declines in both cities in the near-term.

“This is indicative of a housing market that has weakened and one where there is a mismatch between the expectations of buyers and sellers,” he says.

“As such, prices are adjusting downwards.

“The latest auction clearance rates imply that dwelling prices in Sydney and Melbourne will weaken further over the very near term.”

While there is some debate as to whether or not clearance rates are a leading indicator for price movements or simply a symptom of current conditions, Aird sits in the camp that suggests they do tend to provide an indication of annual price movements, particularly in Sydney and Melbourne.

“There‚Äôs a pretty sound relationship between auction clearance rates and annual changes in property prices. Auction clearance rates tend to lead prices on average by two months,” he says.

“Auctions are more popular in Sydney and Melbourne as a means of selling a property.

“As such, the link between auction clearance rates and property prices is very much a Sydney and Melbourne story. As a rough rule of thumb, the annual change in dwelling prices tends to be negative when the auction clearance rate is below 55%.”

Obviously, we’re well below that level at present, perhaps explaining the ongoing and consistent price declines seen in 2018.

Along with clearance rates, Aird says changes in housing finance, foreign residential demand and house price expectations are leading indicators that “capture the momentum in the property market well”.

“From our perspective, we have found these indicators to be particularly useful for identifying turning points in short-run housing price cycles,” he says. “Presently all of these indicators are pointing to dwelling prices continuing to deflate over the near-term.”

Across the smaller capitals, Adelaide continued to outperform the national average with a preliminary clearance rate of 64.4%, up from 47.5% a week earlier.

Preliminary clearance rates also improved in Brisbane, Perth and Canberra from a week earlier.

The relationship between auction clearance rates and annual price movements in Australia’s smaller capitals is not as robust as those in Sydney and Melbourne given many sales in these locations are done via private treaty.

While median prices in Perth have continued to fall this year, modest gains have been seen in Brisbane and Adelaide while prices in Hobart continue to run hot, albeit not to the same level seen in 2017 and earlier this year.

Markets will receive further information on price movements in Australia’s five mainland state capitals later today when CoreLogic will release weekly price data from its daily series.

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