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Home owners can no longer expect that their property is worth as much money as it was even a few months ago, as the auction market weakens to levels last seen in the 2022 downturn.
The monthly auction clearance rate fell to 53 per cent in Sydney and 58.5 per cent in Melbourne during April, Domain figures show.
Those results are below the 60 per cent threshold that indicates an auction market is balanced between buyers and sellers. When clearance rates are below 60 per cent, property prices are likely to be falling.
It’s a noticeable drop since early spring last year, when both cities were close to the 70 per cent mark that indicates solid, although not booming, price growth. By the start of the traditional spring selling season, the Reserve Bank had delivered three cuts to the cash rate, and borrowers were hoping for one or two more by Christmas.
But those cuts never arrived. Inflation numbers started to look less promising. Economists warned that interest rates would, instead, go up.
When buyers and sellers started the year in earnest in February, the monthly auction clearance rate did not reach 70 per cent in either city, and has only fallen since.
Back-to-back rate rises in February, March and now May are reducing borrowing capacity, and buyers are factoring in the chance of more.
Some buyers are concerned about economic fallout of the US-Israel war on Iran, especially higher petrol prices, more expensive mortgages, and the rising cost of living. Investors are awaiting Tuesday’s federal budget for clarity on any changes to property investment tax breaks.
The last time Melbourne’s auction market was weaker was in July 2022. It’s almost the same for Sydney, except for one result in December 2024 – and December is when buyers turn their minds away from auctions towards the Christmas break.
That July was the same quarter as when house prices were falling at their fastest pace on record as the Reserve Bank, having predicted three years of near-zero rates, was raising rates to crush inflation.
It is clear that home values are falling now – down 0.6 per cent in April in each of Sydney and Melbourne, on separate figures from Cotality. The falls for the last three months total 0.9 per cent and 1.5 per cent respectively.
There’s no suggestion yet that the price downturn will be as sharp as in 2022, though. The auction market is seasonal, and April includes long weekends when scant auctions are scheduled, as well as school holidays.
Economists watch the clearance rate because it gives a timely indication of where prices are likely to head, and has proved broadly reliable in the past. But it is less informative on a long weekend when auction volumes are low.
“April is always a funny month,” AMP chief economist Dr Shane Oliver said. “So you’ve got to be a little bit careful about April because of the combination of Easter, school holidays and Anzac [Day].
“But it’s still part of the trend which has well and truly been down this year for both cities, and I think it largely reflects the rise in interest rates.”
Oliver notes the affordability problem. When property prices are at levels that average households struggle to afford, any increase to mortgage repayments is keenly felt.
“It’s been a bit of a perfect storm, in a way, of bad news,” he said.
Oliver is allowing for one more rate rise this year, and thinks inflation will get worse before it gets better. He notes more owners have listed their properties for sale.
“It’s a fairly bleak situation. [But] I don’t know that things are as weak as they were in 2022.”
LJ Hooker head of research Mathew Tiller agrees that, despite the public holidays, there was more uncertainty in the market this April than previous Aprils, given the rising rates and cost of living pressure.
But although there is uncertainty among buyers, he points out that there are still buyers turning up to auction and purchasing, and that there is pent-up demand.
“Properties that are well positioned, well priced and sought after are selling well,” he said.
Individual buyers can be surprised in a downturn to find that their desired property type is still increasing in price. Entry-level home values are rising as first home buyers take up the government’s help. The best quality homes are usually sought-after in any market. Renovator’s dreams, less so.
Vendors who take on buyer feedback when pricing their property have been reporting success at auction.
The outlook, though, will depend on how expensive mortgages and everyday living costs get, how investors react to the budget’s housing announcements, and how many potential home sellers decide not to bring their homes to market in response.
