Are the weekend auction results really meaningful?

If you are like most property buyers, one of the first sections you look up in Sunday or Monday’s papers is the auction results.

The auction clearance rate is by far the most reported real estate statistic; particularly in Sydney and Melbourne where most newspapers and property-related websites headline the clearance results in their Monday editions and lately there has been some rather sensationalist reporting of these figures.

While auction clearances are one of the most commonly cited benchmarks for the relative health of the residential property market, unfortunately, they are not really understood and often misrepresented.

What these figures are meant to show is the percentage of properties that were auctioned on a particular weekend that were actually sold at auction. For example, if there are 100 auctions being held on one weekend and there are 75 sales, then the clearance rate is reported as 75%.

However, property researcher Michael Matusik reports in his Market Insight that auction clearance rates are not what they seem to be.

He suggests that those behind the housing gravy train would have us believe that a high clearance rate (which has averaged over 80% in Melbourne over the last five months, for example) is emblematic of a stampeding real estate market. So persuasive is this argument that this month’s national financial press ran stories claiming that the recent strong auction clearances gave the RBA further reason to lift interest rates.

However, Matusik explains that a different picture emerges when you analyse the sales data.

Only 14% of residential property is advertised for auction across Australia and 85% of these auctions take place in Melbourne and Sydney. Brisbane’s market share is just 7%. Also, clearance rates tell us the reported percentage of auctions that were successful.

Matusik explains (and I would agree) that if a property is unlikely to sell at or very soon after the auction, the property is withdrawn and sold either by private sale. Hence, only properties likely to sell at auction go to auction.

Talk about stacking the deck.

He also explains that there is considerable evidence to suggest that about one in 10 unsuccessful auctions are not reported and when this is taken into account the “real figures are much lower”.

SQM Research also confirm that the number of unreported results has risen dramatically from last year. They suggest that in every city, at least 10% of listings are not being reported and in Melbourne, the situation is very alarming, with over 60% of listings not being reported to Australian Property Monitors on the day.

Recent research by Wakelin Property Advisory found that while Melbourne’s current auction rate is considerably higher than the 66% registered during 2008, the number of auctions that ended in a successful sale is down nearly 20% from last year and down 34% from 2007.

Now just to make things clear… I think auctions are a great way to sell certain types of properties. If I were to sell my home, I’d certainly put it to auction.

But the take home message from this blog is to be wary of reading too much into reported auction clearance rates. They are certainly lower than what the media is currently reporting.

Whatever the motive in this, inaccurate and misleading data is harmful for both buyers and sellers as they develop the wrong expectations.

Michael Yardney is the director of Metropole Property Strategists, a best selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.