CHART: The relationship between Australian house prices and auction clearance rates

If you wonder why so many people scour over the weekly auction clearance reports to determine what exactly is happening in Australia’s broader housing market, this chart explains a lot.

Courtesy of the UBS Australian economics team, it shows the relationship between national house price growth and weekly clearance rates.

Source: UBS

There’s clearly a relationship between the two, with clearance levels often acting as a lead indicator on where prices will follow.

While it’s broken down a little bit in recent years with national price growth lagging what clearance rates had historically heralded in the past, that could be in part due to the dominance of the Sydney and Melbourne housing markets, the largest, and more importantly the fastest-growing, of any capital in recent years.

Based on data from CoreLogic, annual price growth in these cities was significantly higher than in other capital cities, perhaps explaining the disconnect between clearance rates and national price growth recently.

If annual price growth for Sydney and Melbourne was overlaid against the clearance rates, of which the vast majority are held in those two cities, the relationship between the two would probably be tighter.

Regardless, with national clearance rates well off the highs seen earlier this year, George Tharenou, Scott Haslem and Jim Xu, economists at UBS, say that points to a further deceleration in price growth in the second half of the year and again in 2018.

“While the RBA remains on hold, recent macroprudential tightening is seeing ongoing ‘out of cycle’ mortgage rate hikes,” the trio wrote yesterday.

“Hence, we still expect to see slowing of prices towards flat in 2018.”

If that does eventuate, that means that the recent slide in clearance rates to around the high 60% region still has a long way to go yet, potentially to the mid-to-high 50% region should historic relationships repeat.

Something to keep an eye on in the period ahead, particularly if you’re planning to buy or sell.