Auction Clearance Rates Up. Are We in a Boom?

By Kristie Kwok on 20 Nov 2013
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Properties are selling faster, house prices are rising and high auction clearance rates prevail. 

House prices grew by 1.2 per cent in Melbourne over the month of October, and the latest research released by RP Data Auction Plus suggests Melbourne’s clearance rate is around 71 per cent. 

According to RP data, this rate is 13 per cent higher if you take into account properties that have been sold within 30 days after auction, leading to the conclusion that 8 out of 10 properties are selling under auction or shortly afterwards.

The average time that a property spends on the market has also fallen by 11 days over the past year to 34 days at present.

“REIV Chief Enzo Raimondo believes the market is still in a recovery phase.”   

What makes these figures so positive is that even passed-in properties are being snapped up.

“Even if a property is not successful at the auction – although most are currently – they are getting quite a lot of attention and negotiations in the majority of cases are resulting in a quick sale afterwards,” Cameron Kusher from RP Data explains.

Melbourne Not a Runaway Market

Speaking about recent Melbourne auction results, REIV Chief Enzo Raimondo downplayed the hype as he believes the market is still in a recovery phase.

“While the past few months have been strong, we are certainly not in a boom,” he said.

Mr Raimondo also added that both vendors and buyers need to remain realistic about prices at auctions to achieve a sale.

Increased Stock to Hamper Clearance Rate

Housing stock plays a large part in determining auction clearance rates.

Melbourne listings grew by 3.9 per cent in October, according to SQM research, and increased stock volumes are set to continue until Christmas. This could eventually hamper the impressive clearance rates recently seen at Melbourne auctions.  

A Note of Caution About Auction Statistics

Whilst the high clearance rate is consistent with other statistics which show the housing market in Melbourne is rising, a note against looking at auction clearance rates at their face value is necessary.

Firstly, there is no mandatory reporting of all scheduled auctions, which means some auction results go unreported.  Consequently, data collectors are unable to get a complete picture of the overall figures.

“Increased stock volumes are set to continue until Christmas…”

Another shortcoming is how auction clearance rates are calculated, as the current practice is to take the number of successful outcomes and compare it against the number of auction results reported, rather than the number of auctions scheduled.  This approach results in inflated clearance rate figures.

Due to the weaknesses in auction statistics, clearance figures should be evaluated in conjunction with other measures such as the level of house prices, the average time it takes to sell and credit growth. 

However, at this point in time the current clearance rate system is the best way to measure the health of the property market.

In this instance, all indicators point to a healthy and growing housing market in Melbourne.

About the Author

Kristie Kwok is a Street News writer and a fully qualified chartered accountant with a Bachelor of Accounting and Finance degree. Kristie has a passion for all aspects related to property. She also has a strong interest in the economy and financial markets. Kristie has worked for reputable corporates such as KPMG UK, UBS, Lloyds Banking Group and the Royal Bank of Scotland.

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