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Why auction clearance rates provide an early guide on whether Australia's housing market is about to turn the corner
Auction clearance rates hit the highest level since September 2018 last week, helped by lower volumes and weaker reporting levels from real estate agents.
Despite the continued improvement in clearance levels, home prices across Australia's largest capitals continued to fall.
Following the federal election, activity levels will more than double in the week ahead. Every capital will see more homes go under the hammer.
There'll be no changes to the tax treatment of housing following the Coalition's election victory last weekend. APRA is also proposing a modest easing in lending standards and the RBA is likely to cut official interest rates next week.
Clearance rates will provide an early indication as to whether the recent news flow has improved buyer appetite.
Auction clearance rates hit the highest level since September 2018 last week, helped by lower volumes and weaker reporting levels from agents.
According to CoreLogic, 55.2% of reported results cleared across Australia's capitals, a slight improvement from the 54% level of a week earlier.
Image: CoreLogic
Reflecting the impact of the federal election, just 930 homes went under the hammer, down from 1,218 seven days earlier.
Of those, CoreLogic received results from 768, or 82.6%. That was below the 84.6% reporting seen in the prior week.
425 homes sold while 343 failed to clear. The latter result includes those properties that were withdrawn prior to going to auction.
In the same corresponding week in 2018, a final combined capitals clearance rate of 56.8% was recorded from a significantly larger 2,100 auctions that took place.
Image: CoreLogic
By individual capitals, Melbourne, at 60.7%, recorded the highest clearance level across the nation. 85.4% of the 546 auctions that took place across the city were reported, down slightly from 86.4% a week earlier.
Sydney's clearance level fell from a week earlier, slipping from 59% to 56.5%. That was despite reporting rates in the city falling to 78.2% from 81.2% a week earlier.
Across the smaller capitals, Adelaide and Canberra both recorded clearance levels of over 50%, an improvement on the levels seen in the prior week.
Brisbane's clearance level improved from 36.2% to 40%. Perth's clearance rate fell heavily, dropping from 50% to 21.7% week-on-week.
While nationwide clearance rates have improved in recent months, median home prices continued to fall in Australia’s largest cities during the week.
According to CoreLogic’s daily hedonic home value series, prices in Australia’s mainland state capitals eased 0.2% last week in average weighted terms, extending the drop since the end of April to 0.5%.
Median prices in Sydney fell by 0.3% last week, leaving them down 0.8% from April. Melbourne prices slipped by 0.2% during the week, leaving them down 0.4% so far in May.
Elsewhere, median prices in Perth and Adelaide fell less than 0.1% for the week while values in Brisbane were unchanged.
"With the national housing market moving through its down phase and buyer numbers thin on the ground, properties are taking longer to sell as vendors face stiff competition and purchasers take their time to negotiate the best possible price," said CoreLogic research analyst Cameron Kusher, referring to sales via private treaty.
"In order to have the best chance of achieving a sale vendors should set realistic prices, maximise their marketing campaign to ensure their property stands out from the competition and be prepared to meet market expectations."
With the election out of the way and school holidays now well and truly over, auction volumes across the capitals will more than double in the week ahead.
CoreLogic is currently tracking 1,933 nationwide, up from 930 in the prior week.
"Melbourne and Sydney are expected to see a higher volume of auctions this week, with 909 and 680 homes set to go under the hammer, up from last week’s final result of 432 and 276 auctions held respectively," Kusher said.
"Across the smaller markets, activity is expected to be higher week-on-week across all capital cities."
While property prices are still falling and auction clearance rates still remain well below the levels normally associated with rising values, it will be interesting to see how clearance levels fare in the months ahead.
Following the federal election, uncertainty over changes to negative gearing and capital gains tax has now lifted following the Coalition's surprise win, removing a potential headwind for resale values and investor demand.
There's also a strong possibility the Reserve Bank of Australia (RBA) will cut official interest rates for the first time in nearly three years next month, a scenario that has typically led to an improvement in market conditions in the past.
Earlier this week, APRA, Australia's banking regulator, proposed removing the minimum 7% serviceability rate that all new mortgage applications are assessed on. If that is removed -- and it's likely it will — that could increase the amount home buyers can borrow.
Given the recent news flow, there's a lot of potential tailwinds on the way for the housing market.
As a near real-time measure on housing market conditions, auction clearance rates should be watched closely in the months ahead given they'll likely provide the first indication as to whether buyer appetite has improved.
