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The monthly auction clearance rate has hit its weakest level since 2020 but there are signs the market is starting to stabilise.
But that doesn’t mean prices are set to stop falling soon, only that home sellers are starting to understand that they can’t hold out for yesterday’s prices if they want to sell.
There’s also the seasonal effect of a drop in supply of homes for sale over winter, at the same time as there has been a drop in demand from home buyers, which means the recent steadying is not guaranteed to continue in spring.
Sydney’s auction clearance rate fell to 48 per cent in the month of June, Domain figures show, the lowest since the lockdowns of April 2020, when auctions were cancelled en masse and it hit 36.2 per cent.
Melbourne’s monthly clearance rate fell to 52.3 per cent, the lowest since September 2020, when the city was shuttered and it hit 46.4 per cent.
The monthly figures offer a more complete picture of the market than the preliminary data released on Saturday evenings as more sale and pass-in results are reported to researchers. Agents who don’t sell their homes under the hammer don’t always rush to report those results.
The auction market in both cities has weakened since the start of the year. In February about two-thirds of homes scheduled for auction were selling, consistent with rising prices.
That soon fell to about 60 per cent, the level at which the market is considered balanced between buyers and sellers. It then plunged into a downturn, and separate research shows home values falling in the two largest cities.
There has been a perfect storm of factors. As the year began, home buyers were hoping interest rates would hold steady – only a few months prior, economists were forecasting more cuts by Christmas 2025, which never arrived.
Instead, the Reserve Bank lifted the cash rate three times, to 4.35 per cent by May, cutting how much buyers could borrow.
The US-Iran war hit confidence and drove up petrol bills – making buyers even more mindful of their own budgets – before the federal budget changed the rules around investor property taxes.
Some investors instead put their plans on hold.
Despite the weak clearance rate in June, there are signs of the auction market stabilising.
Over the past two weekends the early read on the clearance rate has held above 50 per cent. It will likely be revised down, as more results come in, but it has not returned to the 47 per cent mark that Sydney reached three weeks ago.
Some sellers have been willing to cut their price hopes to sell at auction, rather than letting the property pass in.
Once sellers see that the market is falling, they may be more inclined to set their price expectations at a realistic level and secure a sale. This can support the clearance rate but if their price hopes are lower than a few months ago, property prices will continue to fall.
The other factor likely preventing a lower clearance rate now is there are fewer homes for sale in winter. Buyer demand is down compared with late summer but the number of scheduled auctions is down, too.
Home owners traditionally prefer to sell in spring, when their gardens bloom.
And it’s spring that will be the big unknown. There may not be many buyers but the volume of sellers is less clear.
AMP chief economist Dr Shane Oliver points out that stock-starved July often has a seasonal pick-up in the clearance rate, but there may be more at play.
“I think it’s partly seasonal and owes to vendors pulling back their property from sale, on the grounds they want to get a higher price,” he said.
If that hesitation continues there may not be as many homes for sale as usual this spring, as owners who do not need to sell decide to wait.
But Oliver remembers the downturn from 2017 to 2019, when a crackdown on investor lending combined with the financial services royal commission and worries about changes to negative gearing tax breaks. After a while some vendors “threw in the towel and decided I’d better get out”, Oliver said.
That might happen again, he says, as vendors sell up, rather than waiting and risking a lower price.
On the demand side, he expects investors to hold back from buying until they get lower prices or higher rents. A clear signal the Reserve Bank has finished hiking rates could also offer support but Oliver notes that point has not yet arrived.
“I think it’s too early to say we’ve bottomed for the clearance rate. I suspect it’s going to remain weak for a while yet,” he said.
Domain chief residential economist Dr Nicola Powell disagrees, tipping sellers to pull back – a trend she has already started to see.
“I would be very surprised if we see Sydney dip any further than 48 per cent because I think you get to a point where sellers go, ‘Conditions aren’t right, I’m holding off’,” she said.
“I think you would be only listing your home for sale if you had that realistic price in mind.”
