The proportion of successful home auctions in Sydney dropped below 70% for the first time since April 2016 in another sign of a cooling property market.
Australia’s largest city recorded a final auction clearance rate, a measure of housing demand, of 67.7%, according to research firm CoreLogic. The city saw 619 auctions last week, down from 1,1019 the previous week when 71.9% were successful.
Across Sydney, the final clearance rate dropped below 70 per cent for the first time since April 2016, with 67.7 per cent of the 619 auctions successful last week, down from 71.9 per cent across 1,019 auctions the week prior.
To be sure, the decrease in activity last week was attributed to the Queen’s birthday public holiday. However, auction clearance rates have started to slip as banks raised mortgage rates after a regulatory crackdown on speculative lending.
The successful auctions across capital cities fell to 67.8% last week, recording the lowest clearance rate year-to-date, CoreLogic said.
This week, the nation will see 2,247 properties going under the hammer, increasing from the 1,279 held last week and higher than 2,183 last year. Melbourne will host 1,036 auctions this week, up from 389 last week, and Sydney will have 859 homes auctioned.
That will be a test for the market with CoreLogic expecting investor demand as banks raise mortgage rates for landlords. Investors have been behind the doubling of Sydney home values since 2009.
Since August 2015, mortgage lenders have been charging interest rate premiums for investors, but this has been exacerbated since April after the regulatory crackdown.
In August 2015, the variable mortgage rate for buyers was 5.45% and for investors it stood at 5.75%. Since August 2015, the cash rate has fallen by 50 basis points; however, mortgage rates have not fallen by a similar level.
At the end of May 2017, owner occupier rates stood at 5.3% while that for investors was 5.8%, as the chart below from CoreLogic shows.
A reduction in investor demand will contribute to a further slowing of the rate of value growth in the Sydney and Melbourne housing markets, CoreLogic said.
New South Wales accounted for 49.3% of all investor lending nationally in April 2017 with Victoria accounting for 27.4%. A pullback in lending to investors is inherently likely to hit Sydney and Melbourne housing markets, CoreLogic said.
House prices in Australia’s capital cities slipped for the first time in 18 months in May, data released by CoreLogic this month showed.
Home values in Sydney eased 1.3% in May, marking the first fall since December 2015, while prices in Melbourne slipped 1.7%.