SuperUser posted on March 13, 2012 11:48
Auctions indicate it's still a buyers' environment
With more than a month behind us since the auction season opened up again, it is worth taking a snapshot of the market by looking at how the auction clearance rates have been performing, plus considering the supply of listings.
While it is rightfully argued auctions represent only a fraction of the market, the auction clearance rate has historically proven to be a timely and accurate measure of the health of that very market.
And it has historically been able to pick key turning points in the market before any other indicator. Hence I like to follow these numbers from Australian Property Monitors closely.
The first weekend of the season, when there were a good sample of auctions, was February 4. The clearance reported was a solid 67 per cent with very few unreported results. We at SQM Research were expecting a lift in the clearance rate, given that seasonally clearance rates tend to be stronger at this time of year and the rate cuts of late last year might have helped the market.
However, the following weekend, being the weekend after the major banks independently lifted rates, recorded a decline in the auction clearance rate to the low 50s in what I believe was an absolute negative sentiment change as a result of the moves by the banks.
Since February 11, Sydney auction clearance rates have largely remained at the low to mid 50s and unreported rates have been elevated, suggesting agents have been a bit more reluctant to report bad news.
Seasonally, the autumn period represents a time when there are fewer sellers and more buyers. However it is unclear as to why we have this autumn phenomenon. The long-term average (since 1988) has been about 61 per cent for the autumn months. As you can see, we have been down from those levels.
So readers should be very careful of media reports arguing there is a recovery in the market (due to higher auction clearance rates) during this time.
The truth is, while that clearance rate may be higher than back in December, right now we are actually recording slightly lower levels than this time last year - a period marked by falling dwelling prices.
We also note that SQM Research's stock-on-market numbers for Sydney for last month recorded a rebound of more than 10 per cent from January and were also up by 4.1 per cent from this time last year.
So there are more listings (private treaty and auction) on the market than this time last year, yet clearance rates are the same, or even slightly lower.
That implies listings are not selling quickly and that there is actually more competition between vendors.
If we see a rise in the reported clearance rate back to the 60s before winter, then we will have reason to be more optimistic the modest recovery we forecast will be on track. And that may well yet happen, particularly if the worries surrounding Europe settle down.
But for now, this market still appears to be soft.
Louis Christopher is the managing director of sqmresearch.com.au