Don't take clearance rates at face value

Mal JamesJune 22, 20110 min read

The big talk on the property market is auction clearance rates: the fact they are well below last year (true) and that they are perhaps even lower than what agents are claiming (maybe).

Last year auction clearance rates across Melbourne were regularly in the 70s, percentage-wise. This year they are in the 50s, so it is fair to conclude that this year fewer buyers and sellers agree on price and therefore the market is regarded as weaker than 2010.

But while some journalists and publications argue that the ‘true’ clearance rate may in fact be lower because agents do not report every unsold auction, some agents argue that the emphasis on a Melbourne-wide clearance rate is also misleading.

Jack Bongiorno from Marshall White, for instance, says that while papers such as The Age are reporting clearance rates in the 50s, his company has seen clearance rates in the 70s throughout May and June. Andrew James of Hocking Stuart Armadale agrees, saying his office has also seen clearance rates in the 70s all year.

So The Age is saying one thing and agents another. Well, there’s nothing new there.

So who is right and who is wrong – and does it really matter?

Well, they are both right. And as for whether it really matters, the answer is yes – and no. Is that a splinter I can feel in my bottom from sitting on the fence? Well no, in fact this goes to the crux of what clearance rates can and cannot tell buyers.

According to Andrew McCann of BenMac, clearance rates are measured across a broad number of suburbs, price bands and demographics. “The reality is,” he says, “that some parts of the market will always perform better than others so it is not unrealistic to think that while some areas are soft, others are strong. A good case in point is that our firm sold 11 from 12 auctions last weekend, while the market returned 56%.”

Scott Patterson of Kay and Burton supports this: “The clearance rate in The Age of 59% is a general rate for the whole of Melbourne and does not reflect what is going on in certain areas. Hawthorn, for instance, has had a clearance rate of 80% for the year so far, which seems a different picture from the outskirts of Melbourne.”

This makes it important for buyers to take Melbourne-wide clearance rates with a grain of salt.

Brad Pearce of Miles in Ivanhoe says buyers need to be area-specific on clearance rates to ensure they are in line with their market. “Buyers can become too confident with the lower Melbourne-wide clearance rates and miss opportunities to buy in their area, where in fact properties are still selling well.”

Hawthorn and Kew, for instance, are currently shining with clearance rates in the 70s and 80s, according to Richard Winneke of Jellis Craig. But next door, Camberwell, Canterbury and Balwyn North have had clearance rates in the 50s this year, he points out.

Clearance rates are wonderful things for analysts and journalists, says Steve Abbott of Jellis Craig, “but they are only part of the story for buyers and sellers”. Kay & Burton’s Michael Gibson reminds us too that clearance rates only represent a few hours within the selling week.

And according to BenMac’s Iain Carmichael: “Some weeks we have shockers and the next it’s a dream, so clearance rates are area-specific, very cyclical and not always predictable.”

As a buyer, you also need to look at stats on areas, on specific agencies, on different types of homes, price ranges, stock level indicators, Bidderman (number of bidders per auction) and a variety of other measures.

Indeed, while $1m+ Melbourne may be down on turnover this year, of the last 10 homes we as buyer agents went after in the last two weeks of May, all were sold quickly (and not all to us). So to our mind, the late May 2011 “good home” index (describing the kinds of home we go after) had a clearance rate of 100%.

The buyer message in terms of Melbourne-wide clearance rates is to understand what they represent and to not limit your research to the changing weekly auction headline number when determining your individual buying strategy.

Mal James

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million.
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