Auction clearance rates and the market insights they offer

Auction clearance rates are a valuable tool in understanding the dynamics of Australia's largest real estate markets. Superficially, they’re a barometer for assessing the strength of the property market in Sydney, Melbourne and, to a lesser extent, Brisbane. But the real value comes when we dig deeper. By analysing clearance rates alongside other factors such as listing numbers and withdrawn auctions, we can gain a more comprehensive understanding of what’s really going on at any given time.

Understanding Clearance Rates

The auction clearance rate represents the proportion of properties that sold on or before their advertised auction date.

In Sydney and Melbourne, it’s generally accepted that a clearance rate above 70 per cent signifies a seller's market, indicating high demand and rising prices while on the other hand, a rate below 60 per cent suggests a buyer's market, in which prices may be falling.

A clearance rate between 60 per cent and 70 per cent represents a balanced market, where supply and demand are relatively aligned and prices stable.

Regional Disparities

Agents in the inner Sydney and Melbourne markets have long relied on auctions as the main method of sale so fluctuations in the clearance rate present a clear indication of market conditions in these cities.

A market downturn will generally be reflected in an increase in withdrawn listings in the inner rings of Sydney and Melbourne. In the outer suburbs, along with smaller cities and regional centres, a falling market will result in agents returning to private treaty as the preferred method of sale.

Thus, across most of Australia, auction numbers wax and wane according to market conditions, which is why the clearance rate is a less reliable indication of market strength outside of our two biggest cities.

Instead, gauging the proportion of property offered for sale by auction and tracking days on market would provide more meaningful insights into the overall state of the real estate market in these locations.

Putting it into context

By tracking weekly clearance rates in Sydney & Melbourne in the context of listing numbers, and the percentage of withdrawn auctions, analysts can assess a market's health and anticipate the direction it’s heading in.

High clearance rates paired with low listings do not necessarily indicate a strong market, while high rates combined with high listings demonstrate a more robust demand.

One insight rarely discussed is the percentage of properties initially offered for sale by auction, only to be withdrawn prior to auction. Properties are likely to be withdrawn from auction if the owner or agent, or both, fear they will not get their desired outcome. When this heads north of 15 per cent, we see a very clear indication of falling vendor and agent confidence.

Importantly, auction clearance rates reflect not only buyer confidence, but the willingness of owners to meet market expectations.

Additional Metrics

Auction clearance rate data is released on a weekly basis by a number of reliable sources, most notably, CoreLogic and Domain and this information is collected from sales agents across the country and aggregated into city and regional figures.

From this we can determine how many properties were listed for auction on any given week, how many were reported as being sold at or before the auction and how many were withdrawn from auction.

Large real estate franchises and auction houses have access to more granular data and some periodically publish this information, allowing us to gain a more comprehensive understanding of market conditions.

For example, in Sydney, Cooley Auctions publish a monthly index which provides more detailed insights such as the percentage of properties that sold prior to auction, the number of auctions opened with a vendor bid, how many properties sold above reserve and the average number of registered bidders.

Some real estate agencies produce reports on auction activity in their patch which can be of interest to local buyers and sellers. On a grander scale, the national franchise Ray White release unique data insights and one that recently caught my eye was the number of bidders at auction. These additional metrics contribute to a holistic analysis of market conditions.

By analysing auction clearance rates and related metrics, market participants can make informed decisions regarding buying and selling properties. Understanding the nuances of auction clearance rates, such as their correlation with supply and demand, regional disparities, and additional metrics, allows market participants to gauge the market's direction and adjust their strategies accordingly. Whether it is identifying a seller's market to maximize profits or recognizing a buyer's market to secure favourable deals, auction clearance rates serve as a valuable tool for navigating the real estate landscape.