Multiple bidders suggest strength even deeper than clearance rate barometer: Mark Armstrong

Multiple bidders suggest strength even deeper than clearance rate barometer: Mark Armstrong
Mark ArmstrongDecember 7, 2020

When we talk about the strength of the property market it is very easy to point to clearance rates as the main barometer. Although clearance rates are a good indicator of what is happening week to week, we need to look a bit deeper to anticipate where the market is heading.

Once an auction is finished, the property is sold and the successful buyer exits the market. The result becomes historical the moment it occurs. The under bidders who are left to lick their wounds will determine what happens next. They are the ones we need to focus on.

The Melbourne market was weak throughout 2012 with clearance rates hovering between 50% and 60%. However, hiding behind the clearance rate was that fact that many of these properties were passed in and sold shortly after. This means the properties either failed to reach the expectations of the vendor and/or there was only one bidder. This means there was not much support underpinning the sale result and very little chance of market growth throughout 2012.

Fast forward to 2013 and auction clearance rates have lifted by around 10%. Many people are asking if this will continue for the remainder of the year. I think there are clear signs it will. I have attended many auctions in the first weeks of 2013 and although not all of them have had a strong result there is no doubt we are seeing more competition.

Take, for example, 1/86 Paxton Street, Malvern East. It (pictured below) was advertised to sell for between $560,000 and $610,000 prior to the auction and had a reserve in this range. On the day of the auction the rain was pouring down and usually this would drive the crowds away. When the auction started for the two storey, three bedrooom townhouse style offering, bids were flying left, right and centre and when the flurry stopped everyone was soaking wet and the price had reached $760,000. This was around $150,000 above the vendor’s expectations.

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In Collingwood a couple of weeks ago, the penthouse apartment at 24/125 Oxford Street (pictured below) was sold for more than $300,000 above the vendor's reserve. Multiple offers were received prior to the auction and the vendor correctly decided to let the buyers fight it out.

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While it is clear these results are the exception rather than the rule, they are ‘spikes’ in the market. These ‘spikes’ are underpinned by multiple bidders – in some cases as many as 8 to 10 buyers – who have missed out and now form part of the future market.

This week 10/36 Grandview Grove, Prahran (pictured below) will go under the hammer and the agents have been run off their feet with around 100 groups inspecting the property. The property was originally quoted to sell for $500,000 to $550,000 but due to demand the quote has been lifted throughout the campaign and is now expected to sell closer to $600,000.

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The sale of this property will set a new bar for this style of property and although the successful bidder will leave the market the remaining buyers and spectators will readjust their price expectations as they branch out into the market. This will result in increased pressure on prices and a greater chance of price growth throughout the year.

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.

 


Mark Armstrong

Mark Armstrong is a director of ratemyagent.com.au, Australia's number one real estate agent rating website.

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