How important are auction clearance rates in the housing market?

Over the first five months of the year, across the combined capital cities of Australia, RP Data has recorded 35,367 auctions of which 24,320 (69%) sold either under the hammer or shortly before/after the auction date. 

Over the same time frame we have recorded a total of 128,437 house and unit sales. Based on these numbers, auction sales account for about 19% of all sales across the capital cities of Australia (excluding Darwin).  Excluding the month of January, where very few auctions are held, the proportion of auctions to total sales increases to 22% between February and May.

The remaining 81% of home sales were sold by private treaty. The fact that private treaty sales account for the vast majority of all home sales often gets overlooked when people are commenting on recent market conditions and trends.

Source: RP Data.

Of course the proportion of auctions varies substantially from city to city. Melbourne and Sydney have historically had a selling culture that is more heavily aligned with auctions as a method of sale.  Between February and May of this year, auction sales accounted for 35% of all Melbourne sales and 31% of all Sydney sales. At the other end of the spectrum is Perth where auctions are comparatively rare, comprising just 2% of all sales over the same time frame.

Another trend we have seen in the market since the growth phase kicked off in June 2012 is a substantial rise in auctions as a proportion of the total market. Clearly auctions as a method of sale are more popular when housing market conditions are ‘hot’; a fact which comes as no surprise. Auctions work best when there is high buyer demand providing a competitive bidding environment.

Of course, home value growth is strongest at the moment in Sydney and Melbourne which are the two most auction-centric markets.  What is interesting though is that auctions as a proportion of all sales are significantly higher over the current growth cycle (ie June 2012 to current) compared with the previous growth cycle (ie Jan 2009 to Oct 2010).

Source: RP Data.

Considering that private treaty sales account for a larger proportion of housing sales than auctions, what high frequency metrics are available to monitor this side of the market?  RP Data publishes a variety of vendor metrics each week, with the most commonly referred to metrics being the average selling time and average level of vendor discounting which are both measures of private treaty conditions.  Both of these measures exclude auction results.

The average selling time is a measure based on the number of days from when a home is first advertised to the contract date of sale.  The vendor discount provides a metric on how much vendors are reducing their initial asking price in order to sell their home.  It’s based on the percentage difference between the initial asking price and the contract price on the home.  Both indicators are updated weekly by RP Data based on data received over the past 28 days.

Source: RP Data.

There are additional weekly metrics where you can follow the housing market trends such as updates to the RP Data Home Value indices, median selling prices, number of listings in the market, and metadata indices that indicate mortgage demand (RP Data Mortgage Index) and how many homes are being prepared for sale (RP Data Listings Index).

Source: RP Data.