Sydney Auction Clearance Rate Hits a Stunning 84 per cent

By Pete Wargent on 3 Sep 2013
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More chirping over at Property Observer this week, with David Collyer advising youngsters to shun buying property and instead direct money into a savings account.

Fair enough, there’s little value in continuing with the argument.

There’s nothing wrong with issuing financial advice based on a robust forecasting model or a proven track record, but advice shouldn’t be issued based on what was basically just a guess of prices falling by 20 per cent. A “courageous” call is one way to describe it; “completely wrong” would be another.

Adjusting prices for inflation is also nonsense, for properties aren’t bought with inflation-adjusted dollars, and thus property owners are significantly better off than they were a year ago and have made headway in paying down their mortgages over the past few years, while rents will continue to rise.

Suffice to say that I remain convinced that you can get better returns on your capital than in a savings account with the official cash rate at just 2.50 per cent and likely heading to 2.25 per cent before Xmas, whether via property or from a well-diversified portfolio of profit-making and dividend-paying shares.

As for the “inevitable” housing correction, David is, of course, absolutely right – property prices will always move in cycles and a downturn will definitely come. This is always and everywhere the case. The timing of the next correction, however, is far from certain. It could yet be 2-3 years away by which time the market may have moved on significantly.

In my opinion, Sydney’s property prices, which are already up by well over 10 per cent since the early part of 2012 with gains now accelerating over the last 8 weeks according to RP Data, will probably continue to add strong gains over the coming months and in all likelihood well beyond.

I’m not in the business of weather forecasting, but it would be no surprise at all to me to see this cycle recording price gains in Sydney of in excess of 20 per cent.

Don’t forget that the Reserve Bank is actually looking for property market prices to go up; heck, the board is barely even pretending otherwise.

In any case, there is certainly no evidence at all of any homebuyers’ strike in the harbour city, with auction clearance rates hitting the astonishing level of 84 per cent on Saturday, the highest recorded this year, completing a record month of August for the city.

Last weekend’s 79 per cent clearance rate was the only weekend in the last eight where less than a “boom time level” of 80 per cent of auctioned properties were sold.

The Sydney property boom has some way to run yet.

According to the REIV, Melbourne’s auction clearance rates remained strong at 74 per cent as compared to a very high 79 per cent last week.

Melbourne continues to surprise me – I had previously felt fairly sure that prices would recede somewhat after the phenomenal price boom, but instead the market has been remarkably resilient and prices remain close to all-time highs.

It all just goes to show how hard timing the market is – which is precisely why I’m not a strong advocate.

I heard a lot of talk of inevitable mean reversion and unsustainable prices in London back in the 1990s, yet the best part of two decades later there has been no correction worthy of the name and prices are higher than they have ever been, while those of use with mortgage debt from that time are grateful to have extinguished most of it over that time horizon.

In Australia, to a large extent it’s a question of location. Some cities and regional areas continue to look weak despite record low interest rates. If you’re waiting for prices to become cheap in Sydney’s popular suburbs; however, you may as well be waiting for Godot.

About the Author

Pete Wargent used a buy and hold approach to shares, index funds and investment properties to make his first million in his early 30s. He quit his full-time job at 33. He helps others do the same.

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