Auction clearance rates are up there with checking football tipping competition results as a weekend fixation – but they may not mean nearly as much now as the media attention would have you believe.
According to the latest CoreLogic report, only 15 per cent of national housing sales are by auction, with vast regional differences in how homes are sold in Australia.
Melbourne is the auction capital, followed by Sydney, but our love of the auctioneer falls away rapidly from there and even our two big cities are learning to care less.
The fixation with auction clearance levels overshadows other important aspects of residential real estate markets.
Rather than the disastrous ‘crashing’ housing story pushed by the usual headline-seeking doom-and-gloom brigade, the picture that’s emerging is actually of a healthier housing market.
CoreLogic says the number of auctions is down by about 30 per cent on last year. Much attention is paid to the fall in new listings, but the total number of homes for sale is up quite nicely.
The FOMO (fear of missing out) that helped drive prices too high too fast has gone, but it has not been replaced by FONGO (fear of not getting out).
CoreLogic’s research director Tim Lawless says the proof of that is in the new listings figures. If FONGO was present, you would expect a surge in new listings – it’s not happening.
The latest CoreLogic report records 19,580 new capital city listings, down 22 per cent on the same month last year. That doesn’t look like a rush for the exits. The figures are more dramatic for the big two: Sydney’s 4689 new listings count is down 29 per cent and Melbourne’s 5438 is off 33 per cent.
Mr Lawless told The New Daily the fall in new listings demonstrates a lack of vendor confidence. They’re not selling if they don’t need to.
And buyers are no longer in any hurry. Properties are taking longer to sell, there’s more ‘stale stock’ on the market, meaning the total number of properties for sale has risen despite fewer new listings.
Again from the latest CoreLogic report, the total number of capital city properties listed for sale is up 8 per cent from this time last year to 118,218. Sydney listings are up 4.5 per cent to 27,459 and Melbourne has 35,169 on offer, nearly 18 per cent more than last year.
The greater choice and the lack of auction frenzy with most properties changing hands by private treaty means buyers can take more time to shop around and be confident in their purchase.
The constant headlines about lower auction clearance rates for Sydney and Melbourne also overshadow appreciation of the longer-term story.
The accompanying CoreLogic graph of total and new listings this decade provides perspective.
While new listings didn’t bounce back from the Christmas lull with quite the usual enthusiasm of recent years, they’re still running around that 20,000 mark.
As for total listings around 120,000, the longer-term graph could be telling us the boom years of 100,000 might have been the abnormality, not the present.
There are of course plenty of moving parts at work in the real estate market – population and employment growth, construction and interest rates, credit availability and tax policies – that combine to drive prices. There’s much more to the game than auction clearance rates.
Nonetheless, Mr Lawless says there’s a strong correlation between clearance rates and price movements, with the correlation strongest in Melbourne and Sydney.
That’s obvious in periods of FOMO, when auctions feature two or more buyers competing for the same property. I’m not sure the correlation is as strong without FOMO.
The second CoreLogic graph for combined capitals’ clearance rates and values shows the prices didn’t follow clearance rates all the way down the last time auctions regularly failed to find a buyer. It’s early days yet (and remember all those other factors at work) but prices in recent months again haven’t followed clearance rates all the way.
Attempting to forecast any market with accuracy tends to be a mug’s game, given all the variables, random and otherwise.
It’s pretty much the consensus view that average housing prices will continue to soften this year with new supply and credit availability the key factors. The CoreLogic house view is within that consensus.
Yet, there are increasing signs of banks and regulators wanting to loosen credit. The Australian Prudential Regulation Authority took its foot off its official brake on interest-only loans in December and sundry banks have been trimming rates as they try to tempt customers to borrow again.
And there’s also the money market’s conviction that the Reserve Bank will cut official rates again this year.
It takes time though to change sentiment of both borrowers and lenders. Tighter credit controls have damaged auctions as they require buyers to sign an unconditional contract – something few people can do without jumping through lengthy lenders’ hoops well before the gavel falls.
Which all leads to the interesting debate about whether it makes sense for a vendor to go the auction route in the present market when there’s maybe only a 50 per cent chance an auction will find the buyer.
That can depend on the nature of the individual property and the particular market – but also on the preferences and skills of the individual real estate agent.
Some will argue that an auction date puts a stake in the ground to focus the minds of both vendors and buyers. Some will suggest it can suit agents more than vendors.
Throw that question into the real estate ring and stand back as a fight ensues.
Whatever the outcome, there’s a lot more to Australia’s thousands of residential real estate markets than weekly auction results.
Now, who picked the Reds to beat the Sharks in South Africa?