Why it’s harder to buy a home at auction than it looks this spring

Competition at auctions has been on the decline as the property market weakens, but new figures show that appears to be changing.

Bidder numbers at auctions are stabilising, and even rising in some markets, as buyers and sellers adjust to the cooler market and interest rate rises. The modest supply of homes for sale is leaving buyers with fewer options.

Bidder numbers at Sydney auctions are the highest they have been since interest rates started to rise, said Ray White chief economist Nerida Conisbee. Sydney auctions drew 2.6 active bidders and 4.1 registered bidders on average last week, Ray White data shows, up from a “diabolical low” of 1.4 active bidders in early June.

Melbourne properties had 2.5 active and 3.5 registered bidders on average, up from a low of 2 active bidders and 2.7 registered in mid-July.

“It’s definitely still a cooling market … [but bidder numbers] are improving more than what you would expect given that interest rates are still rising and prices do still seem to be adjusting downwards,” she said.

The spring selling season traditionally bought an uplift in buyer activity, but Conisbee noted other factors were at play. Buyers had adjusted to rising interest rates and reduced budgets, while sellers had adjusted their price expectations. Meanwhile, fewer properties were being put on the market, and fewer still going to auction, leaving buyers with less choice.

“There’s a growing expectation that interest rates are getting close to their peak, and as a result we’re starting to see more activity,” Conisbee said.

“[At the same time] there are not as many properties for sale, it’s a good sign, as that means we’re not seeing high levels of [mortgage] distress … but it does mean that even though prices have fallen … finding a property is still quite difficult.”

Conisbee said Sydney’s sharper shift in bidder numbers is because the city is further along in its market downturn than Melbourne. Meanwhile, in Brisbane, where prices only recently started to fall, bidder numbers were lower than earlier in the year – an average of 2.1 active bidders last week.

Sydney auctioneer Michael Garofolo, of Cooley Auctions, felt buyer sentiment was improving. He had a string of strong results last Saturday, including two properties, one of which was brand new, that each drew more than 20 registered bidders and about half a dozen active bidders.

Buyers had become accustomed to rising interest rates, Garofolo said, while most sellers had dropped their price expectations. Auction volumes were also down, spreading buyers out across fewer homes. Recently built or renovated properties were attracting the strongest demand, amid increasing build costs and delays.

Cooley Auctions had an average of six registered bidders across 47 auctions last Saturday, up from 3.8 in August, but still well down on 10.7 last September.

“The clearance rate still stuck around the 60 per cent mark though … but it was encouraging to see more activity, and more buyers,” Garofolo said.

Domain Group recorded a preliminary auction clearance rate of 62.1 per cent on Saturday, while Melbourne’s was 62.6 per cent, down from the 80 per cent levels reached last autumn and likely to be revised down further as more results are reported. A rate of 60 per cent is considered the threshold below which prices are likely to be falling.

The median property value in Sydney has fallen 7.6 per cent, while Melbourne is down 4.9 per cent as the market declines.

Melbourne auctioneer Simon Gowling, director at Jellis Craig Port Phillip, had also seen a little improvement in bidder turnout.

“In June and July it was very quiet, by late August … it went down to one buyer on everything, and now we’re back between one and three bidders depending on the property,” he said.

“I think most people have adjusted to the rate rises, and they’re doing their sums on where rates might go to … and factoring all that in.”

Reduced housing supply was also helping to prop up competition and support prices, Gowling said, estimating stock levels in his market were down about 30 per cent year-on-year. A-grade homes were still attracting strong competition, but there was less demand for other properties.

“If it’s a little B or C grade, there’s not the same sense of urgency, prices are going down, rates up, [they] don’t need to buy anything in a rush,” he said.