Homebuyer Emotion Sustaining the Market

Results for week ending April 10.

Buyers rose to the challenge this week, even as nationwide sales volume increased to 1,809. The combined capital city clearance rate strengthened, with the early numbers showing that 67.8 percent of auctions found bidders.

The Stats

Melbourne pulled out in front, having both the busiest market and also the most successful for vendors. The city hosted 794 auctions, up significantly from last week, and still posted a closing rate five points higher than the previous week, at 73.2 percent.

The outlook for Sydney appears weaker, with the clearance rate falling back below 70 percent. Demand dropped two and a half points to 67.4 percent, the lowest recording of the year so far. Auction volume was nearly identical to the previous week, at 662.

Adelaide took a big hit, down about ten points to 63.6 percent.

The Graph

The Numbers

The Analysis

Even amidst negative media reports on the unaffordability of Australian real estate, the glut of apartments in Melbourne and tighter lending criteria, homebuyers remain optimistic. Psychologically, we Aussies are predisposed to expecting capital growth, and it will likely take quite a shock to move us off our bullish outlook.

The unaffordability factor seems to be in play, however, as Melbourne begins to show greater strength than Sydney. There will be a point at which buyers say, “enough is enough,” and Sydney’s 12 to 1 home price to income ratio seems to be closer to that point than Melbourne’s 10 to 1 ratio.

What It Means For Investors

Speaking of buyer and seller psychology, here’s an anecdote that reveals where the power currently lies.

A friend of mine just completed a renovation of his home in the outer east of Melbourne and offered it at auction on Saturday. Only two bidders showed up, and they both looked pretty passive, one with arms crossed and the other with hands in his pockets. The auction was passed in, with the highest bid $75,000 under reserve.

The agent got busy conditioning down the vendor, but even after one of the bidders offered another $35,000, my mate stuck to his guns. He was happy to leave the home on the market for three or four more weeks.

Just then, an Asian prospect showed up, saying he regretted not bidding and offered $2,500 over reserve. The previous high bidder, who was by this point already emotionally committed, was incensed. He then offered $10,000 over reserve, and my friend happily accepted.

The agents, who were by that point late to their next auction, said it was the toughest post-auction negotiations they had ever experienced. The moral of this story is that while buyers are now showing up assuming they hold all the cards, it’s the least emotional party who’s often in the strongest position.

For the historical data of weekly auction clearance rates, click here

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.