Auction clearances still strong

ScreenHunter_02 Feb. 13 11.55

By Leith van Onselen

Reported auction clearance rates in Australia’s two biggest markets were once again strong over the weekend.

In Australia’s biggest auction market – Melbourne – the preliminary clearance rate was 82% on 573 auctions reported to the REIV, although a massive 108 auctions were listed as “no result”, which should result in some downward revision once late results are chased-up (see below table).

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The weekend’s result for Melbourne was up significantly on the 75% preliminary clearance rate reported last weekend on 555 auctions, which was later revised down to a final clearance rate of 74% on 599 auctions. However, it was well above the 57% clearance rate on 560 auctions recorded on the same weekend of last year.

This week’s reported clearance rate by the REIV should be taken with a grain of salt, however. In addition to the large number of unreported auctions, RP Data’s auction results for Melbourne registered a a much lower (but still good) 77.5% clearance rate on 711 auctions (i.e. a much bigger sample), which is likely more indicative of the true state of play.

Sydney’s preliminary auction clearance rates were also strong, but weakened slightly. Clearance rates were reported as:

  • 79.0% by RP Data versus 79.7% last weekend;
  • 79% by APM versus 82% last weekend; and
  • 72% by Residex versus 77% last weekend.

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Comments

  1. wasabinatorMEMBER

    I was tracking a property that went to auction in Melbourne over the weekend. I have been eyeing things down there as a potential option to escape the insanity of Sydney…

    Price guide from agent “based on verbal indications”: 740k-820k.
    Auction sale price: 970k (“with 5 bidders”)!!

    Out of the frying pan…

    • Watch it! The agents are under quoting again. I’ve seen price guides that were under the previous sold value.

      • wasabinatorMEMBER

        I thought there was some law preventing them from being out by this much? I mean, the agent insisted that original range was based on verbal interest that was expressed.

        To be frank, I can’t stand Sydney but I’m finding little reason to go down there and likely earn less money if it’s at least as insane as it is up here. Australians are freaking mortgage lemmings.

        The shoe shine boy owns investment properties in this country!

      • It’s only underquoting if they have provided a much higher selling price expectation to the vendor in the agency agreement than what they communicate to prospective buyers. A lot of agents got fined etc for doing that a few years ago didn’t they?

  2. I have been a property bear for as long as I can remember. Never been a fan even before the prices start to rise decade ago. I have always been the party pooper questioning the reason and even danger of the property boom but not just the rise in home prices but the huge mortgages that go with them.
    Well I don’t know whether it is just fatigue setting but I am really starting to think property prices will not subside to a Lower, permanent and sustainable level.
    Politicians are not doing anything about relieving the pressure on property prices and frankly I don’t think there is any resolve to do this. I think we are going the way of the UL/London property market where FHB will be permanently locked out.
    If it does crash I don’t want to be anywhere near the carnage. I am selling down my holdings in the banks and buying international stocks. What is happening is nuts and it saddens me that my own children will not be able to afford a reasonable home for themselves irrespective of how hard they work or save.
    Now I just agree with everyone else property is the best long term investment because it it back by the government. You can beat that.

  3. Interesting to watch this – I have traded small cap stocks for a number of years and though property is the antithesis of this due to the speed and lack of any direct manipulation…

    On stocks where you see heavy volumes at a top and little price movement it often indicates selling hitting the market

    As the property market is impossible to manipulate directly it will be interesting to see what the auction clearance rates do to prices…as according to this data clearances are at very high levels but price is not moving much (I know only one week means nothing)

    But for every buyer there is a seller and I am sure there are two opposing forces in this current market – speculative buyers and savvy, perhaps some forced sellers

    I believe there will be some who will meet the market here and be glad to be out

    Watch the volume and price action closely IMO all you will hear in media is about buyers but think of the sellers out there…

    Economy continues to deteriorate it stands to reason more sellers will continue to enter…

  4. P.S. For those above lamenting how the market has irrationally gone up for years…you are right IMO…but the conditions were ripe for it…there have always been more buyers than sellers – the economy has been so strong…

    That time is about to change IMO…

    Any market is ultimately driven by demand and supply not fundamentals in the short term…

    In a way, the fundamentals have supported the rise on property in Australia…and people generally don’t sell out of their family home easily.

    There are buyers in this market, mostly speculators off the back of low interest rates or Chinese etc.

    If this market goes up here (and sure it could) the more it goes the further they will be exhausted…unless the Chinese etc. continue to come (unlikely long term, give them a bit more credit)

    And now for the first time since around 1990 we have an economic situation where there will be a growing amount of sellers…business owners facing bankruptcy, people who suddenly lose jobs and need to downsize, boomer downsizing…people leaving the county (OK that is a bit harsh – but to an extent it could happen in mining rich areas)…

    I would watch closely as we have the makings of a situation that many here have been expecting to happen for a decade or more…and the time could actually be upon us…

    • wasabinatorMEMBER

      Your analysis is sound with correct reasoning that demonstrates a solid understanding of the fundamentals at play, which is why you will be proven wrong by one of the most irrational markets in the world 😉

      But then again, isn’t the true sign of a bubble about to collapse when even the bears start to deny it’s existence which is happening even all over then MB comments now…

  5. LOL – yes true…but markets don’t stay irrational forever…and we are dealing with a situation where prices are so high, if the employment situation continues to head south people will be forced out…

    • Andew, I would have agreed with you up until a few months ago. Markets don’t stay irrational forever, but maybe we really are different. Even if unemployment does rise, and even if there are forced sales, there is still 1.3 billion Chinese, plus a whole lot of rich Indians, and other buyers from nearby countries falling over themselves to park their money here, and we are just rolling over and letting them.

      We also have a huge number of immigrants pouring into the country putting demand on housing, which is the intended consequence to maintain the Ponzi scheme.

      You say for every buyer, there is a seller, but retirees only have to sell off an investment property or two, and still maintain their own home. And to top it all off, the government is standing by, willing to pump whatever is needed to keep the whole thing going (and growing).

      • wasabinatorMEMBER

        “Even if unemployment does rise, and even if there are forced sales, there is still 1.3 billion Chinese, plus a whole lot of rich Indians, and other buyers from nearby countries falling over themselves to park their money here, and we are just rolling over and letting them.”

        You just described every advanced western nation in the world. Essentially what is happening at the moment is that the west are selling off their children’s futures to the east in order to attempt to have their cake and eat it. It’s despicable.

  6. poignant article from the Guardian today (book excerpt from “The Default Line”) discussing the increasing disparity between incomes and the basic need of housing.

    http://www.theguardian.com/books/2013/aug/18/default-line-extract-faisal-islam-housing

    I personally sold a 3 BR townhouse 5km from Melbourne CBD, that I was living in, last year thinking that gross incomes (and growth) cannot support prevailing house prices and am surprised that 12 months since sale, clearance rates (pre unreported adjustments) have soared… a little curious whether I would have gotten a better price if I had waited until now to sell. At the time, it was more a stop-loss strategy given the amount of interest I was paying relative to stagant/deteriorating prices.

  7. I do agree that there is Chinese and Indian demand – but just wondering where they were three years ago and why the narrative is being spun that they are coming to the rescue now…

    • There is short term demand at the moment due to teh state of affairs in their home countries. The Indian rupee is falling and fast. Many people have taken money out but keeping it in cash can cause problems with their home government.

      Similarly, the Chinese have had restrictions put on the property buying and I think some are becoming wary of their own economical issues.

      The question is, how many will jump when the dollar falls or economic realities hit at home. It happened in the Gold Coast during the GFC (when the dollar tanked and then also when it subsequently went up) and it still hasn’t recovered.

      • I did some basic sums to assess the level of potential demand.

        Taking population x 0.2% (A) x 1/10 (B)
        (A) = assumption 0.2% of population are in suitable socioeconomic status to consider foreign real estate investment
        (B) = assumption 1 in 10 of (A) would actually consider buying in Aus vs other countries

        Combined population of India and China ~ 2.585 billion

        2.585b x 0.2% x 1/10 = 517,000

        ABS Data # Newly constructed dwellings sold FY 13 = 31,260 or foreign demand = 16.5x, i.e. 517/31.26)

        ABS Data # established dwellings sold FY 13 = 467,763 or foreign demand = 1.1x (this is moot since foreigners cannot officially buy established dwellings, but some are sneaky – http://tinyurl.com/l2tv399)

        Total dwellings sold FY13 = 499,023 or 1.0x

        So if there is some truth to sustained China/India demand, and not counting Singapore/Hong Kong, their sizeable populations can potentially double the existing demand for properties or at the very least provide ~16x the existing appetite for new dwellings.

      • wasabinatorMEMBER

        Basically our children are being offered to these eastern investors as a form of Bond. The coupon payments will start being paid once they reach the age where they need to start renting.