Auction Clearance Rates: What do they tell us?

You might be wondering why there is such a fascination with reporting auction clearance rates every Sunday. After all, the number of properties sold by auction accounts for only a proportion of all properties sold in a given week.

So, why are the auction results so hotly anticipated?

Lead Indicator – The auction clearance rate can be a lead indicator of the health of the property market. According to ANZ research[1], there is a strong correlation between auction clearance rates and annual house price movements as shown in the following graph.

Correlation between auction clearance rates and annual house price movements.

Weekly Results – The information is available every week so it is easy to track trends and fluctuations over time.

Barometer of Market Sentiment – Another reason is the results provide an indicator of market sentiment. High clearance rates are a result of strong buyer demand and consumer confidence. Auctions, as a method of sale also increase as prices start to rise as they are perceived as the best method of sale to capitalise on strong competition. If competition is low, private treaty is more often used.

Buyers vs Sellers Market – The results also indicate if it is a buyers or a sellers market. In a ‘normal’ market, clearance rates is between 60% and 70%. When results are above 70%, it is an indication of higher consumer confidence and higher prices are achieved as demand increases. This means it is more of a sellers market.

What the clearance rates indicate today

During September 2019 the preliminary clearance rates in Sydney were consistently around mid-70%. This increased to 80% on 16 October as reported by Domain. Spring is one of the peak seasons for selling so these results are not unusual as seasonality (including school holidays etc) causes fluctuations in both then number of properties offered for sale and buyer demand.

However, this Spring the market is different. New listings are well down, according to CoreLogic[2], with the number of new listings in capital cities being the lowest for this time of year since they started tracking this data in 2007.

Change in New Listings 28 days ending 6 October 2019

But this may change as pent-up buyer demand puts upward pressure on prices attracting cautious sellers back into the market. CoreLogic data also shows that the second week in November is usually the peak of the Spring selling season.

We will know soon enough if sellers are responding positively to the improved market conditions.

Sources:

[1] Auction clearance rates point to rising house prices, but is it sustainable? ABC News 29 August 2019

[2] Spring Hasn’t Quite Sprung For Real Estate Listings. CoreLogic 10 October 2019

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