Australian property prices set to fall further as clearance rates edge lower

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  • Australian auction clearance rates fell last week despite a sharp reduction in the number of properties going under the hammer.
  • Final clearance rates for Sydney and Melbourne could be revised to fresh cyclical lows given poor auction reporting levels seen during the week.
  • With clearance rates continuing to edge lower, at a time when stock listings are seasonally strong, price declines may get a little larger, rather than smaller, in the near-term.

Australian auction clearance rates fell last week despite a sharp reduction in the number of properties going under the hammer.

And with reporting levels weak, there’s a reasonable chance that final clearance rates may be revised down to the weakest level in years.

According to CoreLogic, a combined capitals preliminary clearance rate of 47.4% was reported last week, down from the preliminary estimate of 50.2% released seven days earlier.

In contrast to the recent trend, preliminary clearance rates for homes was stronger than those for apartments, coming in at 48.3% and 44.2% respectively.

The moderation in the headline figure came despite a sharp reduction in the number of homes going under the hammer, sliding to 1,529 from 2,928 in the final full week of September.

Of the auctions held last week, CoreLogic received results from just 1,010, representing a reporting rate of just 66.1%. In the prior week, the preliminary estimate was based on reporting levels of 72.5%.

Of the results received, just 479 homes sold prior to, at or after auction. A total 531 properties failed to sell, including 171 that were withdrawn prior to going to market.

The weak reporting level last week, combined with the level of the preliminary estimate, points to the likelihood that final figures released later in the week could show success rates falling to fresh lows in the current cycle.

In late September, the preliminary result was revised down from 50.2% to 47%, an outcome that is often seen as late, often unsuccessful results, are reported by agents.

In the same corresponding week a year ago, a final clearance rate of 61.5% was reported despite a significantly larger number of homes being taken to auction.

CoreLogic

Across the capitals, Sydney’s preliminary clearance rate eased despite a similar number of homes going under the hammer, falling to 47.7% from 50.7% seven days earlier.

Reporting levels in the city improved modestly week-on-week, lifting to 67.5% from 67.5%.

Despite better reporting levels, it’s likely that Sydney’s final clearance rate will be revised below the 45.3% figure of a week earlier. There’s a reasonable chance it could fall to the lowest level seen since December 2008 given the mix of weak reporting levels and the level of the preliminary estimate.

In the same week a year ago, Sydney recorded a final clearance rate of 59.8%.

Impacted by the start of the Melbourne Cup Carnival, auction activity across Melbourne slowed sharply last week with volumes tumbling to 264 from 1,709 in late September.

Despite the sharp decrease in supply, preliminary clearance rates across the city were largely unchanged, rising to 50.5% from 49.8% a week earlier.

Hinting that final figures for the week could be revised down to fresh cyclical lows, just 55.9% of auction results were reported, down substantially from 78.3% seven days earlier.

As late results flow in, Melbourne’s final clearance rate is likely to be revised below 50%, and then some.

Given historical relationships between clearance rates and annual movements in home prices, Shane Oliver, Chief Economist at AMP Capital, says current clearance rates point to further decline in property values, especially in Sydney and Melbourne.

“Recent auction clearance rates averaging around the mid-40s in Sydney and Melbourne are consistent with ongoing price declines of around 7% per annum,” he says.

“Tighter bank lending standards, particularly around tougher income and expense verification and total debt to income limits, along with poor affordability, rising unit supply, falling price growth expectations and a fear of not getting out for investors are pushing prices down prices in cities which have seen strong gains since 2012.”

In the year to October, CoreLogic said Sydney and Melbourne’s median home price fell by 7.4% and 4.7% respectively, the largest declines in any capital city over this period.

The annual decline in Sydney in percentage terms was the fastest since early 1990.

Given clearance rates in Sydney and Melbourne are continuing to edge lower, at a time when housing supply is ramping up in the lead up to summer holidays, there’s also a risk that price declines may get a little larger, rather than slower, in the period ahead.

CoreLogic

Across the smaller capitals, Adelaide retained its title as having the strongest preliminary clearance across the country at 57.6%. However, that was well below the 67.9% level estimated seven days earlier.

Elsewhere, preliminary clearance rates for Brisbane and Canberra fell from a week earlier while those in Perth edged higher, albeit from low levels.

From a longer-term perspective, all capital city markets except for Perth recorded a lower preliminary clearance rate compared to the levels seen a year ago.

While Australia’s smaller markets have fared better than Sydney and Melbourne in terms of price movements over this period, the broad-based reduction in clearance rates suggests the Sydney and Melbourne-led housing downturn is also starting to impact smaller capital city markets.

Markets will get a near real-time update on home prices later today when CoreLogic releases weekly data on movements across the five mainland state capitals.

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