How the gap widened between property sellers’ hopes and buyer budgets

The auction market is stronger now than last spring after an interest-rate cut boosted buyer confidence, but has softened since its February bounce.

Many home buyers are trying to get into the market before further rate cuts push prices higher, but sellers whose expectations are too high are being forced to re-evaluate.

Sydney’s auction clearance rate was 65.9 per cent in March, while Melbourne was 64.6 per cent, Domain figures show.

It’s a modest easing in each city from February, which hit 68 per cent and 65 per cent respectively, but both are stronger now than during spring last year, when Sydney’s clearance rate fell as low as 49.9 per cent and Melbourne’s bottomed at 55.1 per cent.

An auction clearance rate of about 60 per cent – including properties sold under the hammer and sold prior – is considered a balanced market. A higher result means prices are likely to be rising, but a lower result is usually correlated with price falls.

February is a seasonally strong month for auctions and clearance rates tend to bounce early in the year, compared to the prior year’s close, Domain chief of research and economics Dr Nicola Powell said.

She noted there was a lower volume of Saturday auctions in early February than in March, but potential buyers who missed out before Christmas come to market keen to purchase.

But she said the February interest rate cut was a factor boosting confidence, beyond the seasonal pattern.

“The rate cut is certainly not the game changer for people’s decisions to buy and sell. What it really has been is the confidence switch,” she said.

“Knowing that we are now going to see the cash rate being reduced, that has provided confidence for buyers when they’re heading into an auction.”

She added that some buyers wanted to purchase now, before more rate cuts.

Powell noted Sydney’s March clearance rate rebounded from a brief spring downturn to be almost as high as March last year, when it was 66.5 per cent.

She warned affordability was a greater challenge in Sydney than Melbourne, which would somewhat constrain its upturn.

Melbourne, by contrast, recorded a March clearance rate higher than last March’s 59.9 per cent. She said value has been building up in Melbourne after the market underperformed compared to other cities, meaning buyers were seizing the opportunity to purchase.

There was also a slight divergence in the best performing auction regions. In Sydney, the expensive eastern suburbs led the upturn with a 71.4 per cent March auction clearance rate. Melbourne’s inner ring recorded the city’s second-highest result, but was topped by the more affordable north-east at 68.7 per cent as buyers also look for value and affordability.

Damien Cooley, of Cooley Auctions, noticed the bounce since spring, but thought the start of March was stronger than the month’s end for Sydney.

“The gap between what owners want and what buyers are prepared to pay feels like the gap has got a little bit bigger,” he said.

“Having said that, good properties are still selling very well, we still have properties every week selling significantly above their written reserve prices.

“[But] I’m seeing a lot more owners meet the market, rather than selling above their reserves.”

He said it had been challenging to get the crowd to make the first bid, especially on homes with only one to three registered bidders. In these cases, he tries to start the bidding higher and looks for higher increments.

“We’re seeing a lot of owners at the moment strategically set reserve prices higher than what they will sell the property for because they know it’s going to be a negotiation,” he said.

“That said if an owner is unrealistic on price we’re not advising them to set a higher reserve again.”

He noted that economic sentiment had slipped more recently, adding some buyers who had to sell shares to buy a home would not be able to spend as much because of the share market falls.

In Melbourne, Ray White chief auctioneer for Victoria and Tasmania Jeremy Tyrrell thought the auction market had been buoyant as buyers saw good value, and the rate cut helped buyer confidence, but he had also noted an expectations gap for some properties.

He said the entry-level market from $400,000 to $800,000 was the standout in terms of activity and competition.

“Once we start heading towards $1 million plus, it starts becoming a little bit more challenging. There’s a gap between seller expectations and where the buyer wants to comfortably stretch to. People are cautious about putting themselves into debt,” he said.

“A lot of results you have seen in the clearance rate have gone through quite a negotiation to get there and vendors [are] realising the market isn’t where they thought.”