Market Catching Its Breath
as Policy Decisions Loom
Auction Results for week ending May 7, 2017.
A decrease in demand this week was mostly balanced out by lower auction activity, leading to a slight increase in the combined capital city auction clearance rate.
Across the country, 1,662 homes were taken to auction, with preliminary results showing a clearance rate of 74.6 percent. Last week, 74.0 percent of 2,350 auctions were successful.
Though demand has retreated somewhat, the market remains more competitive than this time last year, in part due to weaker than usual supply. One year ago, 67.7 percent of 2,230 auctions found a winning bidder.
The Capital City Stats
Auction volume in Sydney fell this week from 811 to 585. With bidders fighting over a fewer number of properties, initial reports suggest the clearance rate lifted from 74.3 last week to 77.8 percent this week. Over the same weekend last year, 676 homes were auctioned and the clearance rate was 71.8 percent.
As usual, Melbourne was the busiest city for auctions. Vendors brought 782 homes to auction and preliminary reporting shows a clearance rate of 78.4 percent. That’s a slight increase from last week’s final clearance rate of 78.1 percent across 1,226 auctions. At the same time last year, the city was host to 1,150 auctions and bidders snapped up 73.2 percent.
Adelaide and Brisbane both had stronger weeks, posting preliminary results over 60 percent. Early reporting doesn’t look good in Perth, where only 1 in 7 auctions found a winning bidder.
The Preliminary Numbers
Last week, between Monday and Thursday, the clearance rate in Sydney fell from the preliminary count of 78.4 percent to a final reading of 74.3 percent, after all agents had reported. If the same dynamic plays out this week, we’ll see a clearance rate below 74 percent on dramatically reduced supply, which would indicate a sizeable fall in demand.
CoreLogic’s daily home value index data shows that home prices in Sydney over the past month are still falling on more days than they are rising. In Melbourne, it’s about 50/50 for days rising versus days falling.
The following chart shows CoreLogic’s index movements over the past twelve months. Sydney’s median home price has pulled back to where it was two months ago, while Melbourne’s median remains slightly higher than where it was one month ago.
We should see another surge in supply to test the market next week. Melbourne is expecting over 200 additional auctions, and Sydney should add nearly 300.
Check back here Thursday for the final numbers released by CoreLogic. I’ll leave a comment below with the updated figures and some commentary.
What It Means For Investors
The jury’s still out on where home prices will go from here. The answer depends mostly on what the government and our regulators decide to do next. If you question the validity of that statement, consider what would happen to home prices if the RBA stopped influencing interest rates, if APRA let banks determine their own risk profile, if tax incentives for investors were abolished, and if there were no first homebuyer grants.
The Australian National University (ANU) just released its findings from a recent poll on housing affordability. Here are a few points of interest to property investors that shed some light on the policy decisions we can likely expect in the not-too-distant future:
Most people are already struggling to keep up with their mortgage or rental payments.
Nearly 1 in 4 mortgage holders would face “quite a bit” or “a lot” of financial difficulty if interest rates increased by two percentage points. Half would face at least “some” difficulty.
Australians remain very bullish on the future of home prices.
A growing number of people believe the current Government is the most important problem facing Australia today.
Nearly half of homeowners would support measures to stop the growth of house prices.
Most people would be keen to scrap the negative gearing tax benefit for investors, and only 1 in 4 would fight to keep it.
An overwhelming majority believe first homeowner grants are the answer.
Most people either don’t see government planning restrictions as part of the problem or highly value the livability benefits of restricting supply.
In summary, here’s what I see as most relevant to investors:
- The RBA’s low interest rate policy has inflated house prices to the point where any moves upward in borrowing costs would bring financial hardship on a lot of people. This makes future RBA rate hikes unlikely until wages rise considerably.
- Because home market sentiment remains bullish, prices will continue rising unless policy makers step in to cut off demand. It’s uncertain whether the latest APRA restrictions will be enough.
- In general, the public appears to be supportive of measures to curb investor demand. This indicates that the future of politics belongs to those who will take action on improving housing affordability.
- Things are looking up for the Labor party.
- Investors should not be surprised to see changes to negative gearing in the coming years. This will diminish investor demand for residential real estate, at least for existing dwellings.
- Higher grants for first homebuyers are likely, which should serve to further boost demand.
So what can you expect from Scott Morrison tonight when he unveils the Government’s new budget? If the future is like the past, a lot of talk and very little substance.
What are your takeaway’s from the ANU poll?
The auction results listed here are based on preliminary reporting by CoreLogic.
For the historical data of weekly auction clearance rates, click here.