As sellers lower their expectations to get deals done amid the market downturn, new data indicates that auction clearing rates had improved to levels last seen before interest rates began to increase.
As the shock of seven interest rate hikes fades, brokers report that buyers are returning to the market with a clearer understanding of their finances.
The once-booming housing market has begun to decline due to a rise in the cash rate to 2.85 percent.
Auction clearing rates have increased for three consecutive months, crossing the 60% level despite continuing price declines.
In a market where buyers’ budgets are tightening, this degree of price stability would generally signal that sellers and buyers are more able to agree on price than they were during the previous winter.
According to Domain’s most recent auction report card, the combined capitals’ auction clearing rate increased in October to 61%, the highest level since March’s 63.50%.
It rose from a July low of 49.7 percent, but it still fell short of the 73.5 percent seen in October of the previous year.
The number of items sold at auction increased for the third consecutive month. However, it was 33% lower than in the same period last year.
The clearance rate in Sydney has increased for three consecutive months, now standing at 61.2%; in Melbourne, it has increased for the same number of months, now standing at 61.4%.
Clearance rates in Brisbane, dominated by private sales, increased for the third month in October to 44.5%.
According to Dr. Nicola Powell, head of domain research and economics, the auction market finds an equilibrium between buyer and seller expectations.
Powell said the market needs time to react to interest rate increases and that the effects of higher rates would be seen for some time. “There has recently been a noticeable improvement in the interaction between purchasers and vendors.”
Since fewer auctions were held in the spring than in prior years, this may have contributed to the higher clearing rate in October, she speculated. Sydney’s preliminary clearance rate on the first Saturday of November was 68%, its best since late March, while Melbourne’s result was 61%.
According to Powell, “clearing rates have maintained stable throughout the capitals, and auction volumes continue to climb,” despite a general downward trend from last year. “Sellers will have to adjust to the prospect of more rate hikes and possible price declines if current trends persist.”
Despite increasing auction clearing rates during October, Powell warned that dropping home values would continue as purchasers felt the pinch of rising interest rates.
In the third quarter of 2018, home prices in Sydney fell by 5.2%, and Melbourne’s fell by 4.3%, both marking record quarterly declines.
Tim Holgate, director of Belle Property Lane Cove in Sydney, said buyers’ and sellers’ expectations on pricing had converged.
Since the current market is different from what it was, “there are probably some buyers out,” Holgate said.
After a flurry of activity in the market for larger homes during COVID-19, he said purchasers were now considering all options.
The homes that were selling fast were the ones that were in good shape cosmetically and required little, if any, repairs, he noted.
Holgate remarked that the women “need to appear gorgeous.”
The “tumultuous and unexpected spike” in interest rates has caused some buyers and sellers to wait it out in Melbourne, according to Jellis Craig Fitzroy partner and auctioneer Michael Amarant.
There has been a significant shift in the local real estate market, and he agrees that houses requiring minor repairs are selling quickly.
“If you had an unrenovated terrace in Fitzroy five years ago, excitement levels would blow up enormously,” Amarant said. “However, today’s purchasers are much savvier and careful.”
Despite the market’s initial reaction, interest rates gradually rose in 2022 from their historically low levels in 2020 and 2021.
He added that those entering the market “are quite sober and realistic about costs,” which is a welcome change. Finding a point of agreement or common ground is less problematic.
