From the Westpac economics team:
Australian housing: auction clearance rates hit new highs but price declines continue to point to an uneven recovery.
The latest monthly data on Australia’s housing market is a little tricky to reconcile with auction clearance rates hitting new highs in Sydney and
recovering solidly in Melbourne, a range of other market metrics pointing to continued recovery but a notable decline in prices through April-May.Sydney auction clearance rates hit 80% in the first weekend of June – the highest weekly reading since July 2009. Adjusting for regular seasonal fluctuations, the last 3 weeks have seen auction clearance rates average just under 73% – if sustained, this will mark the highest monthly result since April 2002. Sydney house prices rose 22% that year after a 17% gain in 2001 and with a further 16% rise in 2003.
Melbourne’s auction market is less ebullient but still picking up. Clearance rates are holding around 70%, back above the long run average which tends to be higher in Melbourne, around 65%.
Clearance rates have also risen across other capital city markets, however, auctions account for a small portion of turnover outside Sydney and Melbourne (<5% in most cases).
Even in the two major capital cities, auction activity should really be read as a partial measure – they account for about 15% of turnover in Sydney and 20% in Melbourne and tends to cover a different stock of properties compared to private sales.
Indeed, in contrast to auction market activity, the picture from monthly price data is much patchier. The RP Data-Rismark home price index declined 1.2% in May following a 0.5% decline in April. The monthly price data is very choppy – prices reportedly surged 1.3% in March – and some of reflects seasonal variations as the balance of sellers and buyers shifts over the year. However, even allowing for this, the pace of price growth appears to have flattened out.
Given the volatility of most measures we prefer to track 6mth annualised growth rates for confirmation of shifts, keeping half an eye on 3 month growth rates near turning points. Given the cornucopia of measures – four private sector providers plus an official ABS measure – we also favour using a composite to strip out some of the measurement ‘noise’.
On this basis there has been a modest slowdown from a 3.5% annual pace over the second half of last year to around 2% currently. If the Apr-May weakness extends into Jun and is confirmed by other measures, that could be a more pronounced slowing.
Interpretation-wise, there are a few things that may account for the ‘wedge’ between the strong auction indicators and soft price growth – it may be that sellers are accepting lower prices in order to get sales or it may be that there is more pronounced weakness outside of the 14-20% of sales that go via auction.
That said, the divergence is not normally that large. On balance we would tend to favour the auction data for now but will as it stands the price data is showing no indication of following earlier high clearance rate periods into double-digit price growth territory.
Charts below.
