Auction rates are down in Sydney and Melbourne, but what does this really mean?

Auction clearance rates can tell us how healthy a property market is but the full story is a little more complicated.

Property prices are dropping in most Australian cities and auction clearance rates are slowing in Sydney and Melbourne. "We’re already in a buyer’s market in both of these cities," said CoreLogic Research Director Tim Lawless. "Clearance rates have been falling, properties for sale have been rising and values have been falling."

Let's take a closer look at the auction rates and what they mean for hopeful buyers and nervous sellers.

How much have auction rates dropped?

Based on the most recent data from CoreLogic, total auction clearance rates rose last week to 58.7%, up from 52.4%. But there were undeniable falls in the nation's two largest cities.

Her are the auction clearance data from CoreLogic's most recent report, compared with data from the same week last year:

Source: CoreLogic Property Market Indicator Summary 24 June 2018

The figures clearly show slowing auction rates in Sydney and Melbourne. Other cities have seen fewer auctions compared to this time last year but clearance rates haven't changed all that much, while in Brisbane the clearance rate has actually risen.

Just how important are auction rates when evaluating the property market?

Auction clearance rates are a valuable metric for understanding the health of a city's property market.

Auctions are typically favoured by sellers who think they can get a better price for their properties. In a highly competitive market, as Sydney and Melbourne have been for the past few years, auctions made a lot of sense.

But falling auction numbers aren't a sign that the sky is falling in.

"Keep in mind that auctions are a small overall part of transactions in the house market," Lawless said. "However, they are a good leading indicator of market sentiment. When clearance rates are strong so too is value growth and when they weaken so does value growth. Buyers and sellers should keep an eye on them as a timely indicator of housing market sentiment."

Seasonality plays a part too. "Auction markets are certainly seasonal. Very few auctions take place in January, and autumn and spring are busy times for the market while things cool in winter," Tim Lawless said.

Auction clearance rates are not the firmest statistics in the industry. They are self-reported by real estate agencies and auctioneers, or collected via phone calls from researchers.

What do buyers and sellers need to know?

It's a good time to be a buyer in Sydney and Melbourne. Prices have dropped a little and there are more properties on the market.

Buyers watching the market should look at how long a property has been on the market and check recent sales prices of comparable properties. This can provide a clear benchmark of what's a realistic price, as long as you're comparing a reasonable number of properties and they really are comparable (in other words, similar enough in size, quality, design and location).

Don't rely on online sales listing or what real estate agents are telling you, either. Do the hard research. On the ground inspections let you see through the sales bravado and Photoshopped images to see what's really going on.

Armed with enough information will put you in a good position to make an offer on a property that's truly in line with the market. And if you're not happy with the sale price, remember that there are more properties out there and in a falling market time might actually be on your side.

For sellers, it's a grimmer picture but there's no need to despair. The individual specifics of your property matter as much as broad market trends. If you have a great property in an attractive location you're still in an enviable position. Selling at auction might even be the smarter strategy.

Renovations are another option for sellers looking to boost their chances of making a good sale. Just be careful you don't spend more than you'll make back when you sell.

But whatever your position you do need to have a realistic view of the market. Insisting on a selling price or auction reserve that's out of step with the market will result in a longer, tougher sales process and only hurt you in the long run.

Hopeful first home buyers should compare their finance options or read up on the entire home buying journey in our detailed guide for first home buyers. Property owners worried about finding the best professional to help them sell their property should compare their options through OpenAgent or Commingle, who connect sellers with reputable local agents.

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