What will record low clearance rates mean for The Block contestants come auction day?
Despite higher volume sales, auction clearance rates in both the Melbourne and Sydney markets continue to plummet, and with evidence to suggest that the Melbourne auction market is cooling- The Block 2015 contestants may face a tough crowd at auction.
Auction culture in Sydney and Melbourne
Sydney and Melbourne’s buoyant auction culture has been fuelled by strong buyer demand, with both markets clearing above 80% on average in the past 12 months.
Enter Spring and high clearance rates have fallen dramatically with little sign that they will bounce back any time soon.
Despite this, both Sydney and Melbourne have seen a higher number of properties go under the hammer this season. Sydney saw a record of 1036 properties listed (up from 880 the previous week) and Melbourne saw 1046 properties listed (up from 992 the previous week).
What does this mean for Melbourne and Sydney?
Low clearance rates typically indicate lower buyer confidence as buyers become hesitant to invest, which translates to lower demand and competition for available listed properties.
If the exponential upward trend proves unsustainable, and the market cools, this will confirm speculation surrounding whether the Australian property market is in a bubble.
Impact of the Reserve Bank of Australia (RBA)
The Reserve Bank’s monetary policy decision for October 2015 will influence auction markets in both Sydney and Melbourne.
If the RBA maintains the cash rate, or cuts the official cost of borrowing by 25 basis points, this may ease property investor fears of a cooling market and encourage buyer demand.
In August this year, Melbourne trumped Sydney with a 2% higher clearance rate of 78.8%.
This month, Melbourne recorded a Saturday clearance rate of 74.5% which is the lowest rate since February.
Despite falling clearance rates, the city’s auction price trend continues to rise from previous weekends and auction sales prices are around 10.2% higher than the $731,875 recorded over the same weekend in 2014.
Experts believe that if any type of price correction in the Melbourne market occurs, and property prices begin to fall, this won’t occur until the final quarter of this year.
Auction results for this month are outlined below;
- An unrenovated property in Brunswick East went for a staggering $1.6 million above the $3.4 million reserve.
- A six-bedroom property in Kew went for the highest disclosed sale price for $4.2 million.
- The most affordable reported property sold on the weekend was a one-bedroom apartment located at 8/4 Prince Street, Essendon North which went for $237,000.
- A one-bedroom unit based in Altona sold for $256,000.
What does this mean for The Block auction?
Despite signs of a healthy auction market, record low clearance rates in Melbourne suggest that buyers are becoming more selective- particularly at the premium end of the market.
South Yarra auction results
Interestingly, a townhouse located in South Yarra (where The Block is located) passed in earlier this month at $3.4 million, which was significantly under the reserve of $3.95 million.
In addition, a 2-bedroom apartment situated at 2704/3 Yarra St passed in at auction for $930,000.
Another 5-bedroom apartment at 17 Ralston Street passed in at a vendor bid of $2,500,000 and a 3-bedroom house passed in at auction for $2,625,000 this month.
From the available data, a total of 30.77% (4/13) of South Yarra properties were passed in at auction so far this month.
This market trend, however, is not exclusive to South Yarra, as several other Melbourne properties were passed in for September, including a five bedroom property in Ivanhoe, where bidding finished well below the $3.25 million reserve at $3.05 million.
Buyers advocates believe that clearance rates in Melbourne could fall as low as 65% over the next couple of months-- which could be concerning for the Block newbies.
Will the auction this year resemble the disappointing results from Season 4 of The Block where three of the four properties were passed in? And if not passed in, will there be enough demand in South Yarra for the contestants to trump their reserves?
Sydney’s clearance rate of 71.3% is the lowest for 2015 and represents the 10th consecutive week that the auction market recorded a result less than 80%.
The results for Sydney’s auction market are as follows;
- A run-down Burwood property sold for $700,000 above the reserve at a $3.2 million price tag.
- A nine-bedroom property in Cobbitty sold for $5.45 million which represents the highest disclosed auction sale price for Greater Sydney.
- The most affordable auction sale was a two-bedroom apartment in Liverpool that went under the hammer for $344,000.
Despite this, auction clearance rates have fallen in all sub-regions over the past three months, with the inner west and lower north shore precincts the only precincts where clearance rates remain above 80%.
At the lower-priced end of the spectrum, Sydney’s south west is significantly underperforming, clearing just 54%.
In Sydney, there is evidence to show that the market is slowing particularly in more affluent suburbs. For instance, a five-bedroom Bondi property was passed in at auction earlier this month for $2.965 million.
The activity in Sydney reflects signs of weakening demand from investors in the wake of tougher lending conditions imposed by the Australian Prudential Regulation Authority (APRA).
Some of the lowest clearance rates were in Sydney’s south-west region at around 50%. These areas have generally been sustained by investors which suggests that the APRA intervention is impacting Sydney’s auction market.
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