CoreLogic’s final auction report has been released, with clearance rates tanking to their lowest level since early May 2020 during the height of the pandemic:
Worst auction results since May 2020.
As explained by CoreLogic:
With 51.9% of auctions returning a successful result, last week overtook the previous week (53.0%) as the lowest clearance rate since early May 2020, when just 47.5% of auctions were successful. As selling conditions continuing to weaken across the country, the combined capitals withdrawal rate (14.8%) held around the 15% mark, while a third of auctions (33.4%) were passed in – the highest portion since late January 2020 (34.1%). This time last year 73.0% of the 1,728 auctions held were successful.
The collapse in the clearance rate augers badly for house prices, given their strong historical correlation, especially across Sydney and Melbourne:
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Auction clearances typically lead prices.
Separate data released today by CoreLogic shows that sales volumes have fallen sharply, reflecting shrinking buyer demand. CoreLogic expects this trend to worsen as the Reserve Bank continues to hike interest rates:
Through the June quarter, the number of home sales was estimated to be 15.9% lower than a year ago, reflecting less buyer demand. The slower rate of absorption is likely to worsen as rapidly rising interest rates and low confidence dampens buyer activity further, suggesting even as new listings trend lower through winter, total advertised supply is likely to rise through the second half of the year…
Higher levels of advertised supply implies more choice for buyers but also more competition for vendors.
Ultimately, higher inventory levels would likely add further dampening pressure on housing values as homes take longer to sell, motivating vendors to discount their pricing expectations by a larger amount.
We can already see this scenario playing out in lower clearance rates, higher time on market and larger rates of vendor discounting…
Median days on market in Sydney increased to 33 days through the June quarter (from 23 days a year ago) and Melbourne median days on market has increased from 27 days a year ago to 30 days through the June quarter.
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The shrinking buyer demand is understandable given they have been conditioned by hawkish forecasts by ANZ, Westpac and the market tipping an official cash rate above 3% by the end of the year.
In turn, Aussies now expect mortgage rates to shoot above 6%, which is a terrifying prospect to any prospective home buyer. They also expect house prices to fall heavily, meaning buyers are afflicted with ‘Fear of Overpaying’ (FOOP).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
