Where Melbourne house prices are under the most downward pressure

Melbourne’s property market has notched eight months straight of an ideal buyers’ market as auction clearance rates have languished below the key 60 per cent threshold since March.

Melbourne’s auction clearance rate was 59.3 per cent in October, down 3.3 per cent from the same time last year, Domain data shows. The highest monthly result this year was in February at 63.3 per cent.

An auction clearance rate of about 60 per cent is considered a balanced market between buyers and sellers. Higher clearance rates are generally correlated with rising prices, and lower clearance rates with price falls.

Domain head of research and economics Dr Nicola Powell said consistent auction clearance rates over the last eight months reflected a softening market skewed in favour of buyers.

“I think it’s actually quite unusual to see such consistent outcomes in the auction market…but it does show that the conditions are even better for buyers now relative to this time last year,” Powell said.

“Melbourne has been just chugging along at the same kind of momentum. That is reflective of the fact that we’ve seen Melbourne’s overall housing market really stagnate over the last couple of years, it’s pretty much gone sideways.”

Some parts of Melbourne had clearance rates lower than the citywide average, with Melbourne’s west recording a 50.6 per cent clearance rate. In inner Melbourne 57.3 per cent of homes sold under the hammer in October.

David Swiggs has opted to sell his Port Melbourne investment property via expressions of interest rather than at auction on the advice of his real estate agent.

Swiggs, 54, updated the three-bedroom home with the expectation it would go to auction in the final weeks of the year, but agreed to sell privately amid auction uncertainty.

“[My real estate agent] said that they’re finding that people are a little bit shy with auctions, or a little bit confronted by auctions, so they’re having much better success doing by expressions of interest,” Swiggs, a bank manager, said.

Swiggs, who has sold and purchased property using both selling methods, said auctions likely performed better when the market was stronger.

“It all comes down to having the right person with the right budget to purchase,” he said.

Swiggs’ real estate agent, Fraser Lack of Biggin Scott Port Phillip, said private sales were his preferred selling method while auctions were underperforming.

“It’s just not a very empowering method of sale to conduct at the moment. So I just do not understand the reasoning behind conducting an auction in a market that’s telling you auctions are not performing well,” he said.

“Unless I’m seeing more positive clearance rates in our local market, I’m just not encouraging auctions for any client.”

Lack said the high interest-rate environment has been a key driver of poor clearance rates, creating optimal conditions for buyers.

“Coming off the high of the market that we saw in 2021 and the number of interest rate rises between June 2022 and now, it just took the heat out of the market, and you notice that in the clearance rate,” he said.

Lack said while the inner Melbourne market had been hit by poor auction activity, other parts of Melbourne were relatively buoyant.

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Auctions have performed stronger in Melbourne’s outer east and inner east, recording clearance rates of 66.5 per cent and 64.8 per cent, respectively.

Powell described these areas as the auction heartlands of Melbourne.

“These are markets where buyers and sellers are seasoned in selling homes under the hammer, and I think that the higher clearance rate, relative to other areas, is probably reflective of the right homes going to auction at the right price,” she said.

“Prices have gone sideways. In some areas, they’ve pulled back, and they’re much more favourable conditions for buyers.”

AMP chief economist Shane Oliver said clearance rates were consistent with softening house prices and agreed Melbourne was an ideal buyers’ market, despite high interest rates.

“Competition is low relative to stronger times, so it’s not a bad time for buyers to have been looking around, assuming they can get a mortgage and pay the prices required,” he said.

Oliver said the sideways nature of Melbourne’s clearance rates was driven in part by high interest rates.

“The continuing, relatively high level of interest rates is keeping potential buyers constrained. Buyers are thinking, well, rate cuts are still a fair way off. There’s no rush to get into the property market now,” Oliver said.

“It tells us that demand hasn’t been keeping up with the supply of new homes.”

Oliver said a clearance rate around 75 to 80 per cent was considered strong, while a 40 per cent clearance rate indicated a weak market, and added he expects clearance rates to rise again when rates fall.