Auction clearance rates improving but still at low activity levels: Cameron Kusher
Auction clearance rates have been higher in 2012 than they were over the second half of 2011, but they remain quite low on an historic basis, reflecting the overall weak housing market conditions.
Despite the fact that capital city home values have fallen by 0.7% over the first four months of 2012, there has been an improvement in capital city auction clearance rates. Auction clearance rates provide one of the timeliest indicators of market sentiment and they have averaged 48.9% week-to-week in 2012 compared to 46.5% week-to-week over the second half of 2011.
The improvement in clearance rates has only been a subtle one; however, over the second half of 2011 auction clearance rates across the combined capital cities broke the 50% barrier only once. Over 2012 to date, auction clearance rates have been above 50% on nine separate occasions. Although there has been an improvement in clearance rates, they remain well below those levels recorded in 2009 and 2010, when property values were increasing quite strongly across most capital cities and, in particular, across the two markets in which auctions are a more popular form of sale (Melbourne and Sydney).
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As a result of the overall improvement in auction clearance rates, most individual capital cities have also typically been recording higher success rates at auctions. In Australia’s largest auction market, Melbourne, clearance rates have averaged 52.8% this year compared to 50.8% over the second half of 2011. In Sydney, clearance rates averaged 50.2% over the second half of 2011 compared to 51.9% over 2012 to date. These two capital cities accounted for more than 81% of all capital city auctions over the 2011 calendar year. Across every other capital city, except for Hobart and Canberra, the average auction clearance rate this year has been higher than it was over the second half of 2011.
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Although auction clearance rates have improved over 2012, the average number of properties going to auction has reduced. There are, on average, 17% fewer properties being taken to auction each week this year than there were over the second half of last year. Although auctions are proving to be more successful than they were last year, fewer auctions are taking place. This is, though, somewhat reflective of the fact that the total volume of properties available for sale has been at lower levels this year than it was over the second half of 2011, as well as the fact that fewer properties are listed for sale.
In comparison with the average number of weekly auctions over the same period last year, there are currently 22% fewer auctions taking place each week.
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Auction clearance rates provide a very good lead indicator as to the performance of the housing market and the sentiment of buyers. It is, however, important to note that in 2011 auctions only accounted for 20.4% of all capital city house and unit sales. This is also reflective of the results over recent years and highlights that auctions are something of a niche market.
Of course, not every property is going to be a candidate to be taken to auction. If the subject property is fairly standard there is often little benefit in taking it to auction, whereas many believe that unique and prestige homes should be taken to auction to get the best price. The auction market is certainly more reflective of the prestige housing market, considering that 20.4% of all capital city homes sell at auction, however, these sales account for a much larger 27.5% of the total value of capital city home sales. These trends are replicated across each capital city except for Hobart.
Across individual capital cities there is a varying degree of popularity surrounding auctions. In Melbourne, auctions are the most popular of all capital cities, accounting for 31.6% of all sales, followed by Sydney (23.6%) and Canberra (17.2%). In every other capital city, market auction sales account for less than 15% of all capital city home sales. The results show that, overwhelmingly, most vendors prefer to sell by private treaty and, presumably, most purchasers prefer to buy via this method as well.
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Overall, it is important to recognise that auctions comprise only around one-fifth of the overall capital city housing market and tend to reflect the performance of higher priced homes. Nonetheless, auction clearance rates are a good, timely indicator of market sentiment and it is encouraging that they have been stronger in 2012 than they were over the latter part of 2011.
This article originally appeared on SmartCompany.
Cameron Kusher is senior data analyst at RP Data.