Australia’s housing market is now in full correction mode according to Cotality’s dwelling values index, with values falling at the aggregate 5-city level, driven by sharp declines in Sydney and Melbourne.
The latest auction results from Cotality suggest that the price correction will gather steam, with only 50.4% of auctions held last weekend selling, the lowest final clearance result since the week ending 3rd of May 2020, in the early stage of the COVID-19 pandemic:
Source: Cotality
Cotality states that the result placed the market “firmly in a band historically associated with negative capital growth in the largest capitals”.
“A 50.4% clearance rate is fundamentally a mismatch between vendor and buyer pricing expectations”, Cotality added.
“Consumer sentiment remains deeply pessimistic and well below the long-run average”, with “the time-to-buy-a-dwelling sub-index declining to an 18-month low”.
“Overall, macroeconomic pressures continue to build, creating further uncertainty for investors through proposed changes to negative gearing and the capital gains tax discount”.
“With mortgaged households carrying the lowest confidence of any cohort and homebuyer sentiment at 18-month lows, the read-through to the auction market is direct: buyers are sitting on their hands, vendors haven’t yet recalibrated, and clearance rates are wearing the gap”.
“Historically, sentiment shifts don’t reflect in dwelling values immediately, but clearance rates holding in the low 50% range across the largest two capitals are likely to signal further downward price movement”, Cotality warned.
As shown in the chart below, auction clearance rates have historically been among the strongest leading indicators of dwelling value growth. Therefore, the collapse in auction clearance rates is a very bearish signal for home prices.
The outlook for Sydney dwelling values is especially weak, given its final auction clearance rate has fallen well below 50%:
Melbourne’s final auction clearance rate was stronger at 54.4%, but also portends falling home prices:
The bottom line is that buyer demand has fallen sharply, which will ultimately lead to lower prices.
The federal government’s changes to negative gearing and capital gains taxes announced in the latest budget will only exacerbate the downside.
