Auction collapse drops hammer on house prices

CoreLogic has released its final auction market results for last weekend, with the nation’s clearance rate falling to a fresh 2022 low of 58.2%.

The fall nationally was led by Sydney whose clearance rate plunged to just 53.3% – also a 2022 low. Melbourne’s clearance rate was higher at 58.8%, but also a 2022 low:

Final auction clearance rates

According to CoreLogic:

With 58.2% of last week’s auctions recording a successful result, the clearance rate fell 1.1 percentage points. Overtaking the week prior, last week’s clearance rate is now the lowest combined capital clearance rate since late August 2021 (58.0%) when Melbourne, Sydney and Canberra were in lockdown. This time last year 70.6% of auctions held were successful…

Melbourne’s clearance rate fell below 60% this week to 58.8%, down 1.6 percentage points from the week prior (60.4%). Last week’s result overtook the week ending 8th May (59.8%) as Melbourne’s lowest clearance rate of the year to date and lowest rate since Mid-September 2021 (58.5%). Of the 1,081 auctions held this time last year, 64.0% were successful…

Last week’s [Sydney] result was down 3.1 percentage points from the week prior (56.4%) and down 50 basis points from the week ending 15th May (53.8%) which was previously Sydney’s lowest clearance rate of the year. This time last year 75.6% of the 1,164 auctions held in Sydney were successful.

As shown in the next chart, the plunging auction clearance rate is pointing to accelerating price falls across Sydney:

Sydney auction clearances versus prices

Auction clearances are also pointing to slower price falls for Melbourne:

Melbourne auctions versus house prices

Buyer demand is clearly evaporating. The Reserve Bank’s aggressive interest rate tightening will obviously make the situation worse.

Unconventional Economist

Comments

  1. Vivian DarkbloomMEMBER

    > The Reserve Bank’s aggressive interest rate tightening will obviously make the situation EVEN BETTER.

    Fixed that for you, my pleasure.

    • Alternatively, now that the prices are falling they may opt to include the house prices back in the ABS inflation measure basket.
      In which case the inflation would appear to be very much under control again.
      “Don’t hike now!”

  2. pfh007.comMEMBER

    “… Buyer demand is clearly evaporating..”

    No, they are just waiting for the other side of the deal to sniff the breeze and talk turkey.

    House prices were not etched under the 10 commandments on Moses stone tablets.

  3. Once the cash rate is at 2.5% heaps of stressed FHB will be driven to the wall. They’ll be forced to sell into a falling market. That’ll induce a recession and rates will be dropped again. The investors will swoop in again and pick up houses on the cheap renting them back out to the FHB who’ll then be renting and paying a circa 100-200K loan from the negative equity from having sold. This was always the plan when the rates were lowered. They knew they were temp lows but I suppose they didn’t expect inflation to show up so quickly and so high as well. I guess it makes for an interesting conversation over wine and caviar at the RBA, might even hand out some PhDs to look into it while the average person is thrown to the wolves.

    • pfh007.comMEMBER

      What is more likely is that the vast army of highly geared speculators will start selling their speculations and prices for FHB entering the market will start falling. Though buyers might be advised to wait a few months and let the pressure build.

      FHB who have already entered the market are unlikely to sell even if they find that their disposable income shrinks as they pay higher repayments as interest rates rise.

      Home buyers need to live somewhere and only sell if all members of the household lose their jobs or there is a relationship breakdown.

      Speculators do not live in their speculations and thus are much more likely to abandon the property ship when they smell their pants burning.

      What we are hearing at the moment is the moaning of the asset price speculators and those who service their needs.

      • Camden HavenMEMBER

        At what point will the Chinese begin to sell the stock of 500,000 properties

    • TRADINGtheAPOCALYPSE

      Everyone assumes it’s FHBs and low income folks who are the only overleveraged. But there’s plenty of high income folks who’ve gotten over their skis whilst feasting at the zero interest trough.

      • Vivian DarkbloomMEMBER

        Yep – if the US is any guidance, the so-called sub-prime mortgage crisis started with high-end property flippers who were caught with their pants down.

      • Absolute BeachMEMBER

        I totally agree. When the vulgar bbq banter about EQUITY MATE has swung around and includes weather forecasts, you will know there are new properties up for urgent sale. It will take a few years but I.P’s are easy to dump compared to the P.R.

    • Not sure I see it that way, if the situation looks systemic for banks then steps will be taken to avoid default, you can kick the can on most mortgage repayment issues with the stroke of a P&I to IO key, you just need all the banks and govt/regulator to be on board (which they will be) This at least take care of the forced sellers scenario in all but the extreme tail of economic outcomes?

      Same goes for investors, rates may rise but as long as the rental is strong there is a degree of pain you can take there before fire sales, nobody is going to hose 100-200-500k in capital and costs unless its the only option. There was no fire sale during COVID, despite mass rent moratoriums and no direct landlord stimulus, arguably a far larger stress test than interest rate rises coupled with record low vacancy and rent inflation no?

      Not suggesting the world is not going to get painful shortly but one needs to explore multiple scenarios at all times. Objectively, today’s outlook is far less certain that the beginnings of COVID (depression like conditions rapidly approaching) and yet despite what seemed like an ‘obvious’ bears paradise at the time, who here subscribed any probability to a scenario where stimulus + bank actions led to minimal defaults and then an extreme stock shortage led to the biggest ever boom in prices? This forum was filled with end of days revelations and yet……. Clearly hubris doesn’t just apply to bullish speculators.

      • The Grey RiderMEMBER

        I thought listed companies were supposed to do what is in the best interest of shareholders…this is a new era…I suspect banks won’t be able to show extraordinary benevolence with distressed loans, particularly if RE prices have made a long term top and are now in a sustained downturn.

        • – minimising default by extending terms
          – retaining your NIM
          – Legally coordinating (colluding) with your major competitors in order to avoid mass devaluation of the assets which underpin your balance sheet?
          – All while improving your big bad bank social credit score

          Sounds pretty shareholder centric to me? Worked a treat during COVID did it not? Foreclosure on personal home loans is not a quick process, so 12 months of drama + a guaranteed equity loss or just extend IO terms for 2-3 years or reduce the rate to something manageable and take a small NIM hit on that portion of the portfolio? Seems to me that will work in all but the worst scenarios. After all, these aren’t investment banks, there is no ability to play out the fire sale scene from Margin Call give the loan types and timeframes involved. First one to do that likely just lights the fire that burns them all.

    • What about the Mum & Dad Banks who have taken money out of their homes to fund property purchases for their offsprings ?

      • What about them? Who cares. Ended up with a lot of egg on my face trying to decry the population ponzi and crazy house prices. Nobody listened. Payback is a bitch.

    • I imagine there’s also a lot of potential FHBs (myself included) waiting on the sidelines for prices to fall, since we weren’t willing to take on a huge mortgage to buy boomer bags at the peak. We will be buying when prices fall. If others stretched themselves to the limit to buy at the peak with little wiggle room for rates to rise… I guess they’ll learn a valuable lesson.

      • Absolute BeachMEMBER

        Smart Mr. LG. But be patient. This cycle just started to reverse. Expect prices to trend down over 2-3 years. In the late 80’s and early 90’s, the prices hit a high in about 87 or 88, and dropped until 91 or 92. In undesirable locations prices didn’t rebound until the early 2000’s. There are plenty of parallels with today- but borrowing has been far worse this cycle. Anybody who claims they know how to time the bottom is probably trying to sell you something. Look at Japan- the total value of Aussie property is currently HIGHER than Japanese property at the heights of the 1990’s bubble. And they have an actual economy not just houses an holes.

        • Hmm good to know, thanks for the advice. What was the sentiment like in the early 90s? Was there fear, or was it more capitulation and resignation? Were people expecting prices to ever go up again anytime soon? I’d like to know so I can try gauge sentiment to know when to buy.

  4. What’s the blowback on guarantors should it go pear shaped? There was a lot of talk about parents acting as guarantors for their kids over the past few years. If that’s the case then is it possible that the bank could get two houses for the price of one?

    • I believe the major bank guarantees are limited tot he equity injection, so taking the house of the guarantor would be dependant on them not being able to service a loan of that portion.

      I imagine the consumer finance laws make this a messy and time consuming process for home loan (hence the reason banks don’t like doing it).

  5. reusachtigeMEMBER

    Good to see that more than half of the auction stock is selling each month! Good news indeed.

    • The Travelling PhantomMEMBER

      Indeed, it’s side ways movement warming up to the next boom 💥 🚀

    • That’s the way i see it too. Those numbers are still quite good.,I think LVO should give it a rest until we get something really news worthy. Growth gets slammed is not news worthy. Prices get slammed is a preferable headline.

    • “What we are hearing at the moment is the moaning of the asset price speculators and those who service their needs.”
      You Reusa?

  6. If it really collapses it would not surprise me if banks are expected to write down a portion of the negative equity. In the end they do have a duty of care to assess market valuations as per APRA standards. i.e. if they assessed a place to be worth $1m but now they could only sell for $500K, $300K of that ($200K deposit) is on the banks valuation processes.

    “Collateral and guarantees
    46. An ADI must have prudent credit risk policies covering the acceptability of various forms of collateral, appropriate processes for the valuation of such collateral (including the valuation of collateral prior to entering into an exposure and the ongoing valuation of collateral, where appropriate), and an appropriate process to ensure that collateral is, and continues to be, enforceable and realizable (refer to Attachment A to this Prudential Standard).”

    https://www.apra.gov.au/sites/default/files/Prudential%20Standard%20APS%20220%20Credit%20Risk%20Management.pdf

  7. I wonder at what stage the auction reporting will be dropped. Probably has never happened before.