Is the auction market causing a false dawn for property prices?
- Auction clearance rates of about 60 per cent reflect stable house prices, while 70 per cent or higher shows solid price rises.
- In February, Sydney’s auction clearance rate was 69 per cent and Melbourne was 63.8 per cent, on Domain data.
- Experts say the market is unlikely to stay in its sweet spot as interest rates rise.
Australia’s auction market is in a “sweet spot,” recording clearance rates well above the key 60 per cent threshold in February, but experts warn it’s unlikely to stay there as interest rates rise.
Another 25 basis point interest rate rise is expected when the Reserve Bank board meets on Tuesday, the 10th since May last year, taking the cash rate to its highest mark in more than a decade.
The auction market is in a sweet spot, experts say, as listing numbers are low and buyers are still in the market.Credit:Rhett Wyman
Auctions enjoyed a seasonal lift in February but higher mortgage costs could push auction clearance rates down into the 50 per cent range, which would point to further price falls, Domain chief of research and economics Dr Nicola Powell said.
An auction clearance rate of 60 per cent reflects stable house prices, while a result of 70 per cent or higher show solid price rises.
Over the month of February, Sydney’s auction clearance rate reached 69 per cent, the highest since October 2021, Domain figures show.
Melbourne hit 63.8 per cent, the highest since March 2022.
Across the combined capital cities, February’s auction clearance rate was 64.8 per cent, just below February last year, when house prices were still reaching record highs in some capitals.
“Clearance rates are pretty high, but one of the reasons for this is the seasonal impact,” Powell said. “We always see a bounce in the new calendar year … no matter what’s happening in the market, buyers will come back because they missed out at the end of the year before,” she said.
The number of homes for sale was low, as home sellers waited out the downturn to see stable economic and property conditions, she said.
There is a risk house prices could fall further, especially if more properties hit the market. The risk would be higher if more supply is offered now rather than later, Powell said.
Sydney-based Cooley Auctions auctioneer Damien Cooley said there was still momentum in the market.
Buyers were looking to purchase before interest rates rise again and cut the amount they can borrow further, while listings remained low and offered little choice to home hunters.
“The only thing that will slow the momentum down is a lot more properties coming onto the market and interest rates continuing to rise,” Cooley said.
“It’s possible we’re in a little sweet spot right now because of the low listings and the momentum and that’s where you see big sales.”
A two-bedroom unit in Coogee sold on the weekend, after 37 bidders registered, he said. The unit at 3/32 Mount Street, listed by Craig Rajczyk Real Estate, sold for well above the reserve of $1,502,000.
AMP Capital chief economist Dr Shane Oliver expects further property price falls as interest rates rise and forecasts a peak-to-trough fall in house prices of 15 per cent to 20 per cent.
Nationally, house values have already fallen 9 per cent on CoreLogic data, while Sydney fell 14 per cent and Melbourne 9.5 per cent.
Sydney’s house values were close to the bottom and even edged up in February, while Melbourne, Brisbane, Canberra, Hobart and Adelaide had further to fall. Perth and Darwin were only expected to come back about 5 per cent top to bottom.
The full impact of interest rate rises is yet to be felt, with a lag between RBA decisions and banks passing on hikes, he said.
“Over the next few months, the clearance [rate] will start to head back down again … by the June quarter we will start to see renewed weakness in clearance rates and the same in property price data,” Oliver said.
“People can’t borrow as much as they once could, and there is this risk if rates keep going up that we will end up with more distressed selling.”
The number of homeowners selling under distressed conditions remains low but has started to rise, SQM Research figures show.
There were 1201 distressed listings for sale in NSW in February, still a low level but a 59.5 per cent rise from a year earlier.
In Victoria, there were 828 distressed listings in February, again low, but up 25.5 per cent from a year ago.
SQM Research managing director Louis Christopher said these two states have worse housing affordability and higher mortgage stress than elsewhere, so interest rate rises have had more effect so far.
Distressed listings have fallen over the past year in Queensland and Western Australia.
Buyers have little choice as the supply of homes for sale remains low.Credit:Rhett Wyman.
Distressed listings reached extraordinarily low levels during 2021, and have since risen, although not to alarming levels, Christopher said.
“They’re on the rise. We don’t know how far they’re going to rise yet,” he said. “Much depends on where the cash rate is going to be.”
Christopher said if the cash rate lifted higher than 4 per cent, a key threshold for borrowers’ ability to repay, the number of distressed listings could rise exponentially.
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