Hammer time: What auctions are revealing about the property market

What a year we’ve had for auctions across Australia; the ups and downs have been a focal point for real estate news, and will be discussed keenly over the spring property-selling season.

Auctions are an integral part of Australian property culture, particularly in Melbourne and Sydney. Every Monday morning journalists and property experts eagerly await the results from the previous weekend’s auctions, to report, tear apart and analyse the figures. 

 Why do so many property experts hang on the hinge of auction numbers? Because auction results reflect trends and developments in the property market at large.

Auction trends in Melbourne and Sydney

Sydney and Melbourne property markets are fuelled by a strong auction culture, larger population and high buyer demand. Auction results from these capital cities can paint an initial picture of the health of the Australian property market.

Over the last year the Sydney and Melbourne auction markets were at their strongest during winter, when clearance rates were hitting above 80%. These record high clearance rates drove buyer confidence and reflected a strong Australian property market, with median house prices soaring above $1 million in inner-city areas.

Towards the end of winter and into the first weeks of spring, the high clearance rates have waned and, so far, aren’t showing strong signs of bouncing back to the winter highs.

Preliminary auction clearance rates for Melbourne sit on 73.7%, whereas the final clearance rates from last week were 75.1%. While in Sydney the preliminary clearance rates are 75.1%, and last week’s final clearance rate was 76.9%.

Yet, the number of properties listed for sale in Melbourne and Sydney has jumped as we enter the third week of spring. Sydney saw a record 1036 properties listed for auction, up from 880 the previous week, while in Melbourne 1046 homes were taken to auction, compared to the weekend before’s 992.

So, what do all these numbers mean to for the home seller?

What to look for in auction results

The coming months will be a testing period in the auction arena that could ultimately foresee shifts in the property market.

The most notable factors in the Melbourne and Sydney auction market have been the clearance rate and number of properties listed for auction. The auction clearance rates for the property powerhouse cities have been sitting in the mid 70% for over eight weeks now, reasonably strong results. However, most notably in Sydney, sellers have flooded the market, looking to capitalise on a hot market, with an increasing number of properties being listed for auction.

If clearance rates remain steady, in the mid-70s range, with a high number of sellers on the market, property market conditions will start to level out. The average property price may fluctuate slightly, but we won’t see any sudden changes to property prices for the coming months; we could see a balance struck between a buyer’s and seller’s market.

However, we could start to see trouble emerging in the property market if clearance rates fall below the 70% mark in Melbourne and Sydney. Low clearance rates often indicate a drop in buyer confidence; buyers are hesitant to invest, and as a result there is less demand and market competition for property.

If we see a downturn in the property market it would be a self-fulfilling prophecy, driven by media scaremongering over the ‘Australian housing bubble’, as undoubtedly the media has a strong knock-on effect when it comes to buyer confidence.

 In the end, a lot could come down to the Reserve Bank of Australia (RBA) and reserve rates. If the RBA keeps interest rates low, or offers a third interest rate cut, this could ease property investor fears of a declining market, further encourage buyers, and keep our property market steady in the year to come.

Auction popularity

Auctions tend to thrive in urban areas where property is in high demand and competition is fierce among buyers. The popularity of auctions in a city, or even a region can signify a healthy property market, fuelled by buyer competition.

Sale by auction accounted for 39% and 38% of properties listed for sale in Melbourne and Sydney in the last financial year. In comparison, at the end of the 2013 financial year, the proportion of properties listed for sale by auction was only 32% and 26% in Melbourne and Sydney respectively.

The jump in the percentage of property sales listed as auctions is representative of the growth in the Australian property market, and corresponds with increasing property prices.

Whether or not we see auction as a continued choice of sale could be a telling factor in the foreseeable future of the Australian property market, for sellers, investors and buyers.

Michael Banks is the CEO at LocalAgentFinder, Australia and UK’s market-leading real estate agent comparison service. With over a decade’s experience in property-tech and a background in strategic partnership management, Michael specialises in building digital solutions that simplify and strengthen customer engagement in real estate.