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The truth about the clearance rate

By David Holmes on Nov 01 2017

With price growth slowing in Australia’s biggest housing markets, many sellers have been pondering what is the best strategy for a strong sales result.

Prospective sellers keenly eye the auction clearance rate as a leading market barometer, and with a bumper volume of properties to go under the hammer this weekend, property pundits will have their opinions on what figure dictates a sellers’ or buyers’ market.

But when auction volumes fluctuate, the clearance rate is not the best way to determine buyer sentiment. While it indicates the percentage of properties selling via auction, it doesn’t address the number of sellers achieving success through this method. It also doesn’t capture the number of properties sold through post auction negotiations in the day following the event.

For the record, LJ Hooker, in general, believes auctions are the best method to capture a wide net of buyers in a short-time period, and offers the greatest potential for sellers to achieve a premium result. But in slowing markets, the real efficacy of auctions is laid bare.

In Sydney – the nation’s largest market – data for the September quarter showed the median house price moderated -1.9% over the period. In comparison, the median price had risen 8.2% over the last 12 months. In the second largest market of Melbourne, growth slowed to 1.3% over the quarter, however, it’s still up 13.9% gain over the year.

When price growth slows, sellers want a quick way to capture the last measurements of growth. An auction provides the market with a three to four-week timeframe to put their best offer forward.

And in slowing markets, a nominated price can often be the first thing which deters a buyer from exploring a property and assessing it for its suitability for lifestyle or location, rather than price. 

Nationwide, 18,349 properties sold at auction in the last quarter, which was a 14 per cent increase compared to the September quarter last year (16,147).

In Sydney, there were 9,968 auctions over the same period this year, compared to 8,249 for the same period in 2016. 

While the average daily auction clearance rate dropped from 76 per cent to 69 per cent over the period year-on-year, more homes sold under the hammer in Q3 this year (6,678) than the same period last year (6,517).

Economics dictates that clearance rates will increase when there is an under-supply of auctions; conversely, it’s likely that the clearance rate will drop when there is a flood of properties on the market. 

Property markets fluctuate in cycles – it’s a tenet that’s almost as certain as death and taxes. But don’t hinge your assessment of market performance on auction clearance rates – the underlying data shows more people are having success selling via auction.

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