Although spring is traditionally an exciting time for everyone in the property industry, 2018 may be a little less fruitful than previous years. Falling house prices and low auction clearance rates in capital cities are extending the wintery chill and even the most seasoned of forecasters are struggling to remain upbeat.
Auction clearance rates have been dropping for a few months now and given their importance in the overall perspective of a city’s property market, it’s not something that can be ignored. As if the current fall in housing prices wasn’t enough, low clearance rates at auction mean prices will just continue on their downward spiral. Typically auction clearance rates are known to fall a little in spring, due to the perception that spring is the best time to sell property; as a result, there’s generally a subsequent increase of listed properties. Given the tendency also for vendors to prefer auctions in a slow market, by way of increasing the potential sale price they’ll achieve, this ordinarily creates the perfect storm, of more listings at auction, in a solid buyer’s market.
This spring however, not only is there potential for there to be fewer properties listed for auction, they will also be on the market at significantly lower prices than previous seasons. In Sydney and Melbourne for example, clearance rates have been hovering around the 40 to 50 percent level for some months and experts say this may drop even further into the 30 to 40 percent range once the season is underway. Along with falling house prices, other factors such as tighter lending standards, the onset of the interest only reset period, minimal growth in household income, reduced foreign interest, the banking royal commission and a generally pessimistic sentiment amongst major financial institutions, will all continue to propel figures downward in the foreseeable future.
It is worth noting however that auction clearance rates tend to be an indicator of larger east coast property markets rather than the national average. They are not the only barometer for market health. Despite the focus on auctions as the ‘best’ way to sell property, they are not necessarily the most popular choice amongst vendors, regardless of market conditions. Less than a third of homes in Sydney and Melbourne are sold via auction and in other cities this figure drops even further. Historically, higher end properties tend to be better sold at auction and a far greater volume of Australian property stock falls into the medium price range. In markets where there is little variation between properties, auctions are less of a necessity so the clearance rates in these instances become irrelevant.
So where does this leave you if you are a current property owner, trying to decide your next move? The important thing is to consider the unique characteristics and opportunities related to your property and your local market. If less than 3 percent of properties in your local area are being listed via auction then clearance rates don’t come into your decision at all. If however your property is at the same or a higher standard than other local properties going to auction, you may well clean up due to sheer lack of competition from other properties of the same calibre as yours. The decision to sell should be grounded in a clear and definitive path forward with regard to your investment goals. The phrase ‘don’t believe the hype’ applies just as much to when things are in downturn as to when they are rising ever upward. Don’t let all the negative press get you down, as your property and circumstances are a unique part of the whole. You may be one of the numerous investors who manage to strategically navigate their way through a turbulent patch, coming out with a better result than expected and capacity to continue on to achieve your investment goals into the future.
It’s not all doom and gloom, but whatever you decide should come from an informed place and be grounded in realistic expectations. Get an experienced and knowledgeable real estate agent on your side and utilise their expertise to help you proceed. Auction clearance rates are not the only way to forecast how the property market will perform but they certainly feed into the greater story and can be a good indicator of the current and future health of the market.