Sydney’s auction clearance rate was 58.2 per cent in July. The clearance rates for July are 22 percentage points above the 15-year low reached in April, when the full COVID-19 lockdown impact was being felt.
In recent months Sydney’s auction market has stabilised, and clearance rates have held in the high-50s for three consecutive months.
A clearance rate around 60 per cent is a benchmark for price growth, so clearances dipping slightly below it does indicate home values are likely to continue to mildly fall.
Auction volumes rebound
In July, a rebound of scheduled auctions from the weak volumes of recent months tested buyer appetite.
Almost 2200 homes were scheduled to go to auction – up 83 per cent from May, 14 per cent from June, and a massive 64 per cent more homes scheduled to go under the hammer compared to July 2019. This is the highest number of homes scheduled for auction in the month of July since 2017.
Vendor confidence has bounced back from the lockdown lull. This is not necessarily an indication that the spring selling season is early because while some decisions to sell may have been brought forward, it is more likely a result of delayed decisions flowing from April and May.
Last year, clearance rates persistently hit in the range of 50 per cent until July. It was a turning point for the auction market when they pushed close to 70 per cent and stayed within this range for the rest of the calendar year.
Despite July 2020 clearance rates falling well below this performance, it is a stark comparison given the market has been tested on vastly higher volumes.
Houses outperform units
Historically units tend to produce higher monthly clearance rates compared to houses, but in recent months it has been the reverse. Houses have outperformed units for two consecutive months and the divergence appears to be accelerating.
For houses, the clearance rate was 60.2 per cent – the highest since pre-COVID-19 February result. For units, the clearance rate of 54.5 per cent is the lowest monthly result since the April COVID-19 lockdown low, marginally below the 56-59 per cent range achieved in the previous two month.
The clearance rate for houses is 5.7 percentage points higher than units. This is the steepest difference favouring houses in more than two decades and retreating investors, who tend to sway towards apartment purchases, could be a driver behind the switch.
Sales secured before auction rate remains slightly elevated
Sydney continues to have a cohort of sellers who are accepting an offer before the auction day.
Based on the decade average, this is just under one quarter of homes selling prior to auction day. This trend is on the rise, and is now at 28.1 per cent. While Sydney always seems to have a fairly high number of homes selling prior to auction, the recent elevated figure illustrates a weakened sentiment.
More sellers are opting to withdraw homes prior to auction day. In July, one-fifth of vendors withdrew their home from auction. This is above the decade average of 15.7 per cent, and is in line with the elevated withdrawal rates of between 20 and 29 per cent seen in late 2018 and early 2019 at a time when prices were weakening.
It is important to note that withdrawn auctions are included within the unsold properties when calculating the clearance rate.
Auction prices steady
In July, the median auction price for houses across Sydney decreased marginally 0.7 per cent from June to $1.475 million, while the median auction price for units increased 0.1 per cent to $900,000. Auction prices took a more substantial hit in April and May as the COVID-19-related economic shutdown rattled confidence. However, prices appear to have stabilised and improved from the April dip.
Based on a three-month average, houses and unit auction prices have ticked marginally higher.
