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Outer-suburban auction markets have recorded the weakest results in Sydney and Melbourne as rate increases and a pullback by investors add to the house price slowdown.
Auction clearance rates fell across all but one region in both cities compared with the same time a year ago, with the biggest dips recorded in outer areas, Domain data shows.
In Sydney, some of the lowest auction results were in the north-western region of Baulkham Hills and Hawkesbury, which had a clearance rate of just 39 per cent in May, dropping 20.6 percentage points compared with May last year.
In Sydney’s west, Blacktown’s clearance rate was 48 per cent, down 15.2 percentage points. The Central Coast recorded the lowest rate: 33.8 per cent.
In Melbourne, the outer-east region including Knox, Maroondah and the Yarra Ranges had the largest fall in clearance rates – down 18.5 percentage points to 57.1 per cent.
The lowest rate was in Melbourne’s west (Wyndham, Melton and Bacchus Marsh) at 54.2 per cent in May.
Over last month, Sydney’s overall auction clearance rate was 53.4 per cent and Melbourne’s was 58.2 per cent.
Auction market weakness has continued in June. Sydney’s preliminary clearance rate fell to just 47 per cent at the weekend, and Melbourne’s to 52 per cent.
Domain chief residential economist Dr Nicola Powell said clearance rates were a key signal prices were falling across Sydney and Melbourne and the markets now favoured buyers.
Clearance rates above 60 per cent reflect property price rises, while those below 60 per cent point to a slowdown.
“We’re likely to see prices dip this quarter because clearance rates are now in price-fall territory,” Powell said.
Although the outer regions of Sydney and Melbourne had recorded the lowest clearance rates, she expected house prices there to hold up more than in some inner areas in coming months.
The auction results were instead reflecting the more expensive end of those outer markets, where auctions were not held as often.
“In these outer locations, probably what’s coming up is the higher-priced homes that go to auction – they’re the types of homes that are being hit hardest,” Powell said. “That’s probably where buyers are feeling the pinch.”
In both cities, real estate agencies are reporting that a retreat by investors and the impact of higher interest rates, which lowers buyers’ borrowing power, are putting downward pressure on house prices.
Affordability issues brought on by higher petrol prices are also leaving a mark.
Founder and CEO Matt Lahood of real estate group The Agency said the impact of the federal government’s budget announcements on changes to capital gains tax and negative gearing had been immediate.
Property investors pulled out of The Agency auctions as soon as the announcement was made, he said.
“When you bring something like that in, it’s a shock to the market,” Lahood said. “Investors want to go out and buy new properties now [to be able to negatively gear the property] but there’s not enough new properties.”
Ray White Victoria chief auctioneer Luke Banitsiotis also noticed a shift.
“There are still some investors, but it’s definitely not the same as it was pre-budget,” Banitsiotis said.
“After media reports there may be some adjustments to the budget and those tax changes, people are waiting to see what happens.”
He said in Lara, near Geelong, the number of interstate investors interested in buying into the area had dropped by 70 per cent.
The wait-and-see approach was a change to the FOMO (fear of missing out) market over the past few years in both Sydney and Melbourne.
AMP chief economist Dr Shane Oliver said the “I-want-to-wait-and-see market approach had kicked in”, with anecdotal evidence from the banks suggesting there had been a slump in investor loans.
While the lack of investors was opening up opportunities, first-time buyers still had plenty of hurdles to jump to be able to get a mortgage.
“The 5 per cent low-deposit scheme has helped,” Oliver said. “But even if you have a 5 per cent deposit ready, you’ve got humungous repayments to meet, meaning that the banks won’t lend to you.
“The blow to investors is providing room for that [first home buyer] activity and that’s a good thing, but it’s not going to make up for the loss of investors.”
He expected house prices to continue to soften this year.
Other forecasters also expect further price falls. NAB expects property price falls of 6 per cent in Sydney and 7 per cent in Melbourne this year, while Westpac tips a 3 per cent fall in Sydney and a 4 per cent fall in Melbourne.
