Melbourne’s property market decimated

According to Eliza Owen, Head of Research Australia at CoreLogic, the economic lockdown across Melbourne has decimated the city’s auction market:

The final clearance rate for Melbourne over the week ending 19th of July was 43.8%. This has fallen from 51.2% in the previous week and the low 60% range over the prior three weeks. The recent downwards shift in the Melbourne clearance rate reflects a similar trend of what was seen in the first round of social distancing across Australia from the 25th of March to early May.

From July 9th, the Melbourne and Mitchell Shire went into a 6-week lockdown. Until restrictions are lifted, auctions must once again be held remotely and property inspections will be by appointment only.

The past two weeks of auction results for Melbourne reflect a couple of patterns that emerged during the first round of lockdowns.

Withdrawn properties in Melbourne rise to 41.8% of scheduled auctions

The first familiar trend is a significant increase in the portion of properties withdrawn from auction. Amid the initial period of strict social distancing, withdrawn properties peaked at 64.7% of scheduled auctions across Melbourne, over the week ending 12th of April. This is shown in the graph below.

Prior to COVID-19, the 5 year historic average withdrawn rate for Melbourne auctions was about 3.0%. As of the week ending July 19th, the rate of withdrawn properties has once again started to climb, reaching 42.0%. This represents 209 auctions reported as withdrawn of the 498 auction results collected over the week.

A high rate of withdrawn properties reduces the clearance rate, and lowers volumes

Withdrawn auction results are counted as a ‘non-sale’ at auction. While this consistent methodology has allowed us to understand a true representation of the success rate of auction methods in particular, it does mean that the auction clearance rate becomes
limited as an indicator of demand.

The chart below demonstrates that auction clearance rates have been significantly impacted by the high rate of withdrawn properties. The Melbourne auction clearance rate has started to diverge from the Sydney results as the city endures a second round of lockdowns.

A high rate of withdrawn properties also reflects the relatively low level sold under virtual conditions, with vendors less willing to test the auction environment under lockdown. The physical restriction on auctions, as well as dampened consumer sentiment, will likely see auction volumes fall further in the coming weeks.

Despite the shock to the auction environment, a greater portion of properties sell under the hammer in the first week of lockdown 2.0 relative to the earlier lockdown period

The chart above shows the portion of scheduled auctions that sold ‘under the hammer’ (sold at an auction), versus prior to the auction and sold after auction.

Similarly to the first round of lockdowns, more properties have sold before auction across Melbourne, than via a virtual auction over the past two weeks. A property sold ‘under the hammer’ during a lockdown is assumed to be a virtual auction.

However, it is interesting to note that the negative shock to the ‘under the hammer’ metric is not as severe as it was in the first week of the first round of restrictions. In the week ending the 29th of March, the portion of properties sold at auction was just 9.2%. For the week ending 12th of July, the portion was 23.4%.

Given COVID-19 saw an adoption of online sales methods earlier in the year, real estate agents and auctioneers should be more prepared to pivot towards a ‘virtual’ auction environment and virtual auctions may be more successful this time around.

Furthermore, despite high levels of uncertainty, it is also interesting to see how quickly the auction market has rebounded as auction resumed across Victoria. If the last phase of lockdowns was anything to go by, the auction market and, more broadly, housing market activity, is likely to recover as restrictions are eased or lifted.

The below chart tracks Melbourne’s final auction clearance rate against dwelling value growth:

This data points to hefty price falls, which is already being reflected by CoreLogic’s quarterly price growth, which has fallen by 3.2% across Melbourne:

The outlook for Melbourne property is unambiguously poor, given the second lockdown, soaring unemployment and the city’s extreme reliance on immigration, which has collapsed.