What the rising auction clearance rate means for the market
Last week saw the Real Estate Institute of Victoria report a 73 per cent clearance rate for Victoria’s Sales and Auctions results, which marks both a significant bounce back from the fall that was seen in Victoria’s clearance rates in late 2018 when they fell to below 40 per cent (figures that were last seen in 2011).
Clearance rate declines in 2018 reflected a range of economic factors, but a significant influence was the shifting and stricter lending circumstances many bidders found themselves in. Without clear financing prior to auction, many buyers in 2018 relied on post-auction negotiations, which went some way in offsetting the record low clearance rates.
With last week’s return to seemingly healthy clearance rates, it’s easy to assume that the real estate market is showing signs of a strong return to the sort of growth last seen two years ago. However, two other factors help to keep these clearance rate figures in context: the length of time properties are remaining on the market and the number of properties on the market.
There were 464 recorded properties for sale last week in Victoria, which is down 34 per cent from this time last year when the figure sat at 706. Volumes are also expected to fall in Victoria this weekend, with the REIV predicting that approximately 380 properties will be available.
Today the Australian Prudential Regulation Authority (APRA) attempted to give the real estate market a boost by loosening lending restrictions. The regulator has scrapped the requirement of lenders, such as the big four banks, to satisfy a borrower serviceability assessment requirement that restricted lending only to those borrowers who could demonstrate an ability to pay back a loan at a 7 per cent interest rate.
The move is a reflection of and response to the recent cash rate cut by the RBA to a historic low of 1.00 per cent. APRA’s loosening of lending requirements intends to allow borrowers to afford homes in higher price brackets and in turn give still declining dwelling values a boost. According to CoreLogic data, national dwelling values continue to fall, but the rate of decline slowed in May this year to 0.4 per cent, the smallest month-on-month decline seen since May 2018.
Yet this boost by APRA, cuts to the cash rate by the RBA (which were passed on by the big four banks in their own interest rates), and a continued slow down in the decline in dwelling values does not necessarily mean a sharp turnaround in dwelling values in 2019, as the volume of fresh listings (shown below) remains at a historical low.
The length of time that properties are sitting on the market also indicates that growth in activity and prices may remain sluggish for 2019.
By the end of June, Sydney homes were taking an average of 50 days to sell, compared to 33 days the same time last year. In Melbourne, homes took an average of 44 days to sell over the March quarter, compared to 29 days a year ago.
Claire and her husband Mark, who both work in finance and have been looking to sell their home in Melbourne’s southeastern suburb of Cheltenham say they are unsure of how best to read the market. Dwelling values in the area have declined nearly 15 per cent since this time last year.
“I’ve watched more houses being sold over the past several weeks,” says Claire. “But watching nearby homes being discounted or passed in over the last year has made us put on the breaks to some of our plans, at least until we see how things go in the lead up to Spring.”
Despite increased assurances from regulators and the potential for this to boost buyer confidence, it is this insecurity from vendors that may promise to keep any growth in house prices or market activity this year to a minimum.