Sydney real estate market crumbles: More auctions, fewer buyers

The Sydney home auction market continues to crumble under the relentless forces of high auction numbers, fewer buyers and rising mortgage rates.

This weekend Sydney will again host more than  900 auctions as sellers continue to flood the late spring market. Although this will be lower than last weekend’s 1011 auction listings it is again significantly higher than the 875 homes auctioned over the same weekend last year.

The most popular suburb for auctions in Sydney this weekend is Mosman, with 19, followed by Maroubra and Ryde, each with 10 and Lane Cove, Marrickville and Georges Hall each with nine auctions scheduled on Saturday.

Sydney’s home auction clearance rate crashed below 60 per cent last weekend reflecting the impact on buyer confidence of recent rises in home mortgage rates.

Sydney recorded a clearance rate of just 59.2 per cent on Saturday, well down on the previous weekend’s 63.3 per cent and significantly below the 75.5 per cent recorded over the same weekend last year.

The Sydney market continues to track at the lowest levels since the spring of 2012 and with no sign of sharply falling buyer activity and clearance rates bottoming out.

The unprecedented shakeout in the Sydney housing market has accelerated over recent months following bank actions to raise interest rates for investors and followed-up by higher interest rates for owner-occupiers announced over the past three weeks.    

Skittish buyers are now taking a wait-and-see approach to home purchases, fearful of the likelihood of further rises in rates. Fragile buyer sentiment was also likely impacted by the decision by the Reserve Bank to leave official interest rates on hold over November despite a strengthening case for a cut over the past month.

Falling confidence is now impacting sellers, with 112 auctions reported withdrawn last Saturday following the 100 withdrawals the previous weekend. This is more than double the 52 withdrawals reported over the same weekend last year.

Trend weekend auction prices continue to increase reflecting falling levels of lower priced homes selling at auction.

The latest trend price of $1,169,000 is higher than the previous weekend’s $1,150,250 and 14.5 per cent higher than the $1,020,625 trend recorded over the same weekend last year. 

There is currently no end in sight to falling clearance rates in Sydney with weekend results remarkably 30 per cent lower than those recorded just six months ago and likely to go lower. The underling supply and demand drivers for the Sydney market however remain sound with the strongest capital city economy, a chronic underlying shortage of housing and continuing strong migration levels.    

Buyer and seller confidence has been bruised through unpredictably higher mortgage interest rates but this is likely to have a relatively short-term impact on the local market. Regardless, the glory days for home owners of booming Sydney house prices recorded over the past few years are a fading memory with prices growth likely to be much flatter for the foreseeable future.

The Reserve Bank has decided to leave official rates on hold at 2 per cent for the sixth consecutive month despite signs of a weakening economy over the past month. 

The decision will be disappointing to mortgage holders and prospective home buyers now grappling with higher interest rates, and to the retail sector looking for a boost in pre-Christmas sales in a fading economy.

Recent revelations of a downgrading of official forecasts for national economic growth will surely encourage the RBA to act sooner rather than later and cut rates. Particularly given concerns that the recent increases of rates by banks may not have ended – with perhaps more to come.

Dr Andrew Wilson is Domain Group’s senior economist @DocAndrewWilson

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