Auction clearances dive as rate rise rattles buyers

78 views 2022-05-09 13:17:25

Auction clearance rates fell sharply across most capital cities as the first interest rate rise in more than 11 years unnerved buyers who are worried about the impact of higher mortgage costs on their household budgets.

The slowing market also spooked vendors who have started to pull out in droves, data from CoreLogic shows.

A week after the RBA raised the official cash rate, Sydney’s preliminary auction clearance rate dropped by 3.6 percentage points to 58.7 per cent, the weakest result in two years.

In Melbourne, early results showed the clearance rate tumbled by 3.8 percentage points to 64.6 per cent, the lowest preliminary result since December.

Average preliminary results across all capital cities dropped 2.5 percentage points to 64.7 per cent, the lowest level this year.

“The interest rate decision has put further pressure on the housing market, which was already slowing prior to the rate rise,” said Tim Lawless, CoreLogic’s research director.

“Rising interest rates and high inflation are eroding household balance sheets, which is causing buyers to pull back.

“The correlation between clearance rates and the pace of value growth is really strong, so the falling auction clearance rates portend declines in prices, particularly in Sydney and Melbourne.”

SQM Research managing director Louis Christopher, said the rise in the cash rate and the prospect of further interest rate increases had turned sentiment negative towards the housing market.

“Fewer buyers would enter the market as it becomes more difficult to qualify and service a big mortgage,” he said.

“The overall hurdle rate to test home loan applicants will go up and disqualify an increasing number of would-be home buyers and investors, and this in large part is what is going to drag the market down for the rest of 2022 and perhaps beyond.”

SQM Research is expecting Sydney house prices to decline by 7 per cent this year, Melbourne by 8 per cent and nationwide by 4 per cent.

As Sydney’s clearance rates continue to weaken, more vendors are withdrawing from the auction market, according to CoreLogic.

The proportion of homes withdrawn this week has surged to 25 per cent, the highest level since April 2020, around the start of the pandemic.

“We’re seeing more auctions being pulled from the market and not being rescheduled,” said Mr Lawless.

“Since the middle of February, more vendors are shunning the auction market. People who have been looking to sell their home by auction are simply pulling out of the market as conditions start to deteriorate.”

Sydney-based auctioneer Clarence White said it was becoming harder to get buyers to bid at auctions.

“I’ve really noticed that when there are only a small number of bidders, like what we’re seeing now, people back away very quickly and they hesitate to bid,” he said.

“Buyers’ confidence is very low at the moment.”

Jack Henderson of Henderson Advocacy said vendors were also becoming nervous about selling.

“There are a lot of anxious sellers in the marketplace and some are probably making irrational decisions around the price that they’ll take for a property,” he said.

“For buyers, this opens up a great opportunity because this is the peak of the uncertainty for both vendors and other buyers, which means you can take advantage of people’s emotions as a buyer.”

In contrast to the weaker auction results in Sydney and Melbourne, Adelaide posted an 81.2 per cent preliminary clearance rate, the highest across all capitals. Canberra cleared 75 per cent, while 62.7 per cent sold at auctions in Brisbane.

Among the sales in Brisbane was a five-bedroom house in Ashmore on the Gold Coast that sold for $3.65 million at auction.

This article is from Australian Financial Review, please click the following link for the original article:


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