Here’s how I interpret auction clearance results

Now that our property markets are on the move no Sunday morning is complete without checking the weekend clearance rates, especially for property pundits in Melbourne and Sydney.

That's because the auction results are a timely gauge of conditions of what's going on with the housing markets especially in our in our 2 big capital cities.

We report the weekly auction clearance results every weekend here at Property Update and it's always one of the most read blogs on a Sunday.

But how useful are these figures and what should you interpret them?

Note: Fact is, despite the preliminary auction clearance rates being reported promptly every weekend, to get the right information from these figures it’s increasingly important to apply a few adjustments.

Firstly the number of auctions being conducted is important.

Other than in Sydney and Melbourne, auction clearance rates don't really give as good an indication of the general sense of the local market considering around 10 times the number of properties are put up for auction in the two big cities than in the smaller capitals each weekend.

Then we also need to adjust for:-

1. Early results skew high

The various data providers collect their auction data in part by agent's phoning in their results and partly through a team of tele-callers contacting agents.

Not surprisingly, agents tend to report their successful auctions results earlier.

Most data providers report preliminary results on Saturday night or Sunday and then release a final estimate on the following Thursday.

The difference in terms of clearance rates is on average around 3-5 percentage points in Sydney and Melbourne.

Also, in the weaker market as we experienced in 2022 we saw more slippage than usual, and more properties being withdrawn from sale.

Pre-auction withdrawals provide another important clue to the strength (or weakness) of the markets.

Whereas a passed in result may be due to bidders not taking the price above reserve, a withdrawal points to sellers assessing that there will be insufficient bidders to even justify an auction.

2. Seasonality

The time of year also makes a difference to auction results.

Buyers and sellers come and go from the market at slightly different times, producing a regular ebb and flow to clearance rates as the balance of power shifts.

They seem to be more buyers around heading into Autumn and Spring, pushing up auction clearance results during normal market conditions - obviously this year things have changed due to the coronavirus lockdown.

For March this effect is worth about 2pts in Sydney, slightly more in Melbourne.

Seasonality diminishes gradually heading into Winter, re-emerges in Spring and then turns sharply negative as buyers disappear over the Summer holiday period.

Why bother tracking auction clearance results?

One of the main reasons I track auction clearance rates is they are a good "in time" indicator of the strength of our property markets and in the past have been a relatively good indicator of price growth.

Note: Auction clearance rates are good indicators of prevailing supply and demand, but like with most property statistics the prevailing trends are often more important than specific numbers.

Generally speaking, clearance rates above 65% were typically associated with solid gains in property values, and over 75% with outright strength, while rates below 50% range were associated with property price declines.

About Bryce Yardney Bryce is a property development specialist, having successfully sourced, project managed and completed hundreds of development projects for Metropole’s clients, helping them create substantial wealth.