Melbourne Sellers Take Advantage of Competitive Auction Environments

A 76 per cent clearance rate was recorded this weekend, albeit on low numbers (354 auctions). With only 6 results reputedly unreported, we can expect this figure to remain the same when the midweek update is released.

However, there seems to be some uncertainty to the figures. On Saturday, the REIV’s clearance rate on a total of 402 auctions was 75 per cent, with zero unreported results (never heard of such a thing!) and 100 passed in (55 on a vendor bid).

Come Monday morning, the clearance rate was 76 per cent on 354 auctions (6 unreported) with 86 passed in.

In contrast RP Data, who usually receive a lower number of auction results than the REIV (primarily due to selling agencies’ desire to get their name published in the Domain weekend breakdown, which collects results directly from the REIV) reported a clearance rate of 67 per cent based on a larger sample of 397 auctions.

Once again, it clarifies the distrust surrounding the accuracy of our reporting bodies.

In contrast, last week’s clearance rate dropped below 70 per cent, only to be revised to 68 per cent once all results had been collected.

The ABS has released May’s housing finance data, which demonstrated a modest improvement in the number of owner-occupier commitments and first home buyer commitments for the same period.

First home buyers now make up 14.6 per cent of the market, a rise from 14.3 per cent in April. However, it’s likely these figures have been affected by the various issuance and withdrawal of First Home Buyer grants and incentives. This may pull figures back post-July, as grants for established accommodation have now been diminished in favour of new acquisitions in Victoria, Tasmania and the ACT.

Allowing for seasonal adjustment, there has been a 1.8 per cent increase in the number of financed owner-occupied dwellings compared to a 1.9 per cent rise in April. There has also been a modest increase in the average loan size for owner-occupiers. This rose $400 over the same period to $302,200, which no doubt reflects buyers’ increased flexibility as they take advantage of our low interest rate environment.

For Victoria, the seasonally adjusted figure was +2.6 per cent. The ACT was the only city to record a decline.

Investor activity also remains strong. The value of investor finance commitments went up by a further 1 per cent in May and 24 per cent year-to-date.  This is the highest level since June 2007, which is driving speculation and inflating prices in certain micro sectors of the established property market.

Apartments are generally considered the ‘foot through the door’ property type that attracts a younger first home buyer demographic. However, the bulk of inner city established unit and apartment stock is investor owned (close to 70 per cent in some localities). Therefore, both typically compete for the same property types within a similar price bracket.

Most investors are speculating on capital gains and employing a negative gearing strategy, which promotes speculation into established terrains and a ‘hold for the long term’ mentality.  As a consequence, unit holding periods over the past decade have increased 39 per cent (RP Data) which further promotes a bottleneck of demand.

In Sydney, investors make up roughly 50 per cent of the buying market, and with the level of residential property listings falling to 2009 lows – which accounts for a -23.1 per cent yearly decrease in stock (SQM), and an increase in job growth – it’s no wonder we’re seeing an upward surge in property prices as a combination of economic and social headwinds collide.

There’s been plenty of analysis assessing Melbourne’s market to be a soft option compared to other states such as Sydney (as I cited above) and Perth, and whilst the data holds water from a macro perspective, the level of competition in the middle and inner ring suburbs has been intense.

The first home buyer numbers played into this figure to some extent, and as I’ve mentioned previously, some of the extra activity can be put down to the typical effects auction dominated terrains exhibit, in which buyers choose to pay a bit extra to beat the compounding psychological effects of openly transparent market competition.

However, it’s clear sellers are taking advantage of the current auction rally. RP Data’s statistics show a significant uplift in the number of vendors choosing to transact using this method of sale. 

As a rough estimate, there have been 100 more capital city auctions each week. The chances of selling on the day increased from around a 50/50 chance to a 60/40 chance.

In some suburbs of Melbourne, the clearance rate is significantly higher than average. Suburbs such as Abbotsford, Balwyn North, Bentleigh and St Kilda East are just a few of the localities where a higher number of auction sales have been coupled with clearance rates in excess of 75 to 80 per cent.

Other figures from RP Data show over the first quarter of 2013, 25.2 per cent of all Melbourne sales were transacted via auction, up from 15.8 per cent over the March quarter of 2012. Whilst the vast majority of transactions Victoria-wide are conducted via private treaty, in the pockets where auctions sales dominate, the upward effect on prices as buyers collide in a competitive atmosphere is clearly evident.

As a result, buyers would be wise to consider pre-auction offers in favour of waiting to ‘see what happens’ on the day itself, during which the heightened atmosphere limits the amount of control buyers are able to command to a deepest pockets wins scenario.