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Auction clearance rates are dropping – does this mean the market is turning?

 

Australian capital city auction clearance rates have slowly fallen to levels not seen in almost two years. According to CoreLogic, a national clearance rate of 64.4% was recorded last week, down from 66.3% in the previous week. It now sits at the lowest level since January 2016.

An auction clearance rate is a percentage figure that signifies the total number of properties sold at auction for the previous week.

Every week, the REIV collects approximately 97% of auction results in Victoria. This is the highest of any data provider in the state. The weekly auction clearance rate is calculated by measuring the amount of properties sold at the actual auction. It also calculates the properties sold directly before (usually within three business days before the auction) or directly after (usually within three business days after the auction).

Data for properties that are passed-in at auctions are also collected as a percentage rate. They do not include withdrawn or postponed auctions.

Properties sold outside of three business days (before or after) a scheduled auction are recorded as private sales as they are not sold under auction conditions.

Whilst the auction clearance rate gauges part of the property market sentiment, it is only one of many indicators that should be considered.

Firstly, when looking at auction clearance rates, it is important to consider the number of auctions held. A high clearance rate from low auction numbers is not necessarily indicative of a strong market, just as a low clearance rate from high auction numbers does not always indicate a declining market.

It is also very important to research the auction clearance rate for each individual suburb and more particularly, the exact suburb you are focusing on. For example, Richmond might have a high auction clearance rate of 88% and Mordialloc might have a lower clearance rate of 71%.

Caution should be exercised when interpreting exactly what the auction clearance rate means. For example, there is no consideration given to the number of bidders at the auction, how much the property exceeded the vendor’s reserve price, the number of bids or the number of competing auctions for similar properties at the same time.

Another point to note is that passed-in properties / private sales are not included in the auction clearance rate calculation and the vast majority of these properties are sold within seven days of the scheduled auction.

In summary, the statistics can be useful when considered over a lengthy period of time and when you understand specifically what is being recorded. All of the above information should be used in conjunction with your own market research.