Auction clearance rates in Sydney and Melbourne rising but not because listing numbers are low: analysis

Relatively high clearance rates in the past two months can be taken at face value and are not the result of particularly low real estate stock levels, an economist says.

In July the rate was 69 per cent in Sydney and 67 per cent in Melbourne, and the rate each week since then has been higher.

Research by Domain economist Trent Wiltshire indicated this was most likely an early sign of a market turnaround and rising prices, and higher clearance rates were not caused by low auction numbers.

“There’s been commentary suggesting that clearance rates have been boosted by the low number of auctions,” he said. “Historically, that hasn’t been the case.”

Mr Wiltshire’s research looked at monthly clearance rates since 2005 and found the opposite to be true; months with more auctions had higher clearance rates.

While there were some months or weeks that had low numbers of auctions and high clearance rates, the research showed this was not typical.

“Regardless of the number of auctions being held, clearance rates are still a timely and pretty accurate indicator of market conditions,” he said.

This rule might not apply in certain areas of the wider cities, as the property market greatly varies by suburb, he said.

“This analysis looks at Sydney and Melbourne as a whole, so there may be suburbs or pockets where low auction numbers have contributed to higher clearance rates and prices.”

On the ground, auctioneers are upbeat about spring.

Buyer confidence in Melbourne has picked up in the past few weeks, with a rise in the amount of active bidders per auction, Ray White chief auctioneer for Victoria and Tasmania Matthew Condon told Domain.

Instead of holding back and waiting to see what unfolded, buyers are now placing higher starting bids, responding quickly to their opposition instead of waiting for the third and final call, and jumping in with a second wave of bidding after a home is announced on the market, he said.

“I do expect it to continue,” Mr Condon said.

“If we continue to get such a high level of active bidders, even if we have more properties come to market I think there’s enough interest and confidence in the market to sustain.”

Buyer activity in Sydney has also been picking up, Cooley Auctions managing director Damien Cooley said.

“It’s not just off the back of low volumes of property on the market – that is a contributing factor but it’s not the only factor,” he said.

“I think the Liberal government getting re-elected has played a significant role in people’s ability to have confidence in the asset values.”

He also highlighted interest rate cuts and a move from the bank regulator to let buyers borrow more.

“In the lead-up to the election, buyers were really saying, ‘look we’re unsure, we’re not sure what we’re going to do, the market’s come off, the market’s not as good as it was, we’re going to wait and see’,” he said.

“Now the buyers are saying, ‘The market’s lot better, we think it’s the right time to buy’. There’s a bit more urgency from buyers to make a decision.”

Mr Cooley expects to maintain a good level of sales through spring.