Buyers Brush Off End of Year Supply Surge
Auction Results for week ending December 11, 2016.
Sellers stepped up this week to record the highest level of auction activity in nine months. A total of 3,411 homes went under the hammer, an increase of 7.5 percent in auction volume, week on week.
Preliminary reports show a backlog of hungry buyers swooping in to lift the combined capital city clearance rate to 74.6 percent, up from last week’s final result of 72.3 percent. Last year over the same weekend, only 58.2 percent of auctions found a successful bidder, and that was on weaker volume of 2,948.
The City Stats
Melbourne appears to have cleared above 80 percent this week, with early reports showing a success rate of 80.2 percent on 1,683 auctions. That’s an increase of three basis points from last week, when 77.3 percent of auctions found a winning bidder. Remarkably, supply also jumped significantly from last week, when 1,416 homes were auctioned. This time last year, 1,572 properties were taken to auction and a clearance rate of 64.9 percent was recorded.
Sydney’s also remained strong, posting a preliminary clearance rate of 77.4 percent on volume of 1,157 auctions. These results are almost identical to last week. Over the corresponding weekend last year, only 891 auctions were held with a clearance rate of 54.7 percent.
The Preliminary Numbers
While little changed in the Sydney market since last week, the Melbourne market seems to be working hard to find a point of equilibrium. In December, auction volume historically tends to trend down as sellers expect fewer buyers in the market in the lead up to the summer holidays. This year is different. The unusually high clearance rates of October and November are pulling forward some supply as sellers seek to capitalise on high prices. Clearly, there are plenty of buyers to absorb the additional supply. This week we saw a 20 percent increase in the number of sales since last week.
Here’s a chart from Core Logic showing the auction volume and clearance rate results for the past five years:
Last year, a similar dynamic occurred, although not this late in the selling season. The result for 2016 was too little supply to meet the strong demand brought on by low interest rates. If future supply continues to be brought forward, and if interest rates remain low, then prices are likely to keep rising through 2017, barring a European or Chinese debt crisis, of course.
What It Means For Investors
Speaking of a looming debt crisis, investors should keep an eye on Italy’s banks in the coming weeks. The nation just went through yet another political upheaval, ushering in its fifth prime minister in as many years, and the fourth in a row to come to power without winning an election. The economy has been in turmoil for the better part of the last decade, and its banks are burdened with bad loans.
As a result, Italy’s largest bank, UniCredit, is about to sell off €13 billion (A$18.4 billion) of assets in hopes of avoiding a crisis. The country’s third largest lender, Monte Dei Paschi di Siena (MPS), will likely need state intervention to avoid collapse. Unfortunately for the Italians, all of this comes at a time when the European Central Bank is cracking down on bail-outs, demanding that investors and depositors cop their fair share of bank losses.
And why should Aussie investors care about European banks? Because our property market is currently propped up by access to cheap credit, much of which originates from the overseas wholesale lending market. If the ECB fails to contain these bank failures, other lenders could feel the pinch and a credit crisis would dry up capital flows into Australia.
Some would say it’s not a matter of “if,” but “when.”
The results listed here are based on preliminary reporting by CoreLogic. The final results will be reported in next week’s post.
For the historical data of weekly auction clearance rates, click here.