With conditions in Australia’s real estate market improving, so too have auction clearance rates. On average, 70 percent of auctions over the last month have recorded a successful outcome, compared with just 46 percent at the end of last year.
Auction clearance rates are generally considered to be a reasonable measure of real estate market sentiment. When market conditions are subdued, auction clearance rates tend to be poor; and when market conditions are buoyant, clearance rates are generally high.
This was certainly demonstrated through most of 2008. As the Global Financial Crisis unravelled, clearance rates averaged about 45 percent meaning that less than half of the properties put up for auction sold at, before or after auction.
Since the start of the new calendar year, auction clearance rates have improved consistently, now averaging about 70 percent across all auctions based on a weighted average across each market.
The improvement in clearance rates can be attributed to a number of factors. Most importantly, market conditions have improved with property prices showing modest growth, consumers are more optimistic about the economy and vendors have become more realistic in their price expectations.
Additionally we may be seeing a case of quality as opposed to quantity in the auction market. Total auctions are down 22 percent compared to last year; a much larger drop than the 13 percent fall in total advertised housing stock. This may suggest that real estate agents and vendors are preferring other selling methods over auctions. Also, with auction sales generally associated with high end and unique properties, many vendors of these homes are preferring to hold off selling until market conditions in this segment improve further.
The two largest markets for auctions (by far) are Melbourne and Sydney. These two markets typically account for 80 percent of all auctions nationally, so national clearance rates are largely dictated by what transpires in these two auction markets. Outside of Melbourne and Sydney, Brisbane is the only other market to record a significant number of auctions, averaging about 90 each week or roughly 10 percent of the national auction market.
There needs to be some care in how auction results are interpreted outside of the core auction markets of Melbourne, Sydney and to a lesser extent Brisbane.
For regions such as Perth, Adelaide, Canberra and Hobart, auction results are much less meaningful because auctions as a selling method are not as popular in these regions. Over the year to date Adelaide has averaged just 47 auctions each week, Perth has averaged 26, Canberra has averaged 22 and the whole of Tasmania has averaged only 8 auctions each week.
With such small auction numbers, clearance rates are less indicative of consumer sentiment in the market. What is more important is an analysis of market volumes, price movements, the level of vendor discounting and the length of time it takes to sell a property.
