Are the signs pointing to a real estate recovery?
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Auction clearance rates have been creeping upwards since their low point of November 2018 where just 47% of homes that went under the hammer in Melbourne sold on auction day or earlier. Clearance rates are one measure used by many to determine the overall strength of the market and this number can be a predictor of the future market dynamics.
On the 11th May 2019, the real estate industry website realestateview.com.au reported the auction clearance rate at 60% from 383 advertised auctions. It's clearly a starkly different result from just 6 months earlier but what are the reasons behind this increase? Are these the early warning signs of a real estate recovery in Melbourne? Should we be getting our skates on to invest in real estate before the next boom begins?
As many have seen, Melbourne's real estate market is notorious for sharp increases and year on year capital growth with an almost doubling of prices between 2006 and 2016 according the the data from the Valuer General.
Whilst analysing the data and attempting to speculate the future can be an interesting exercise for those watching from the sidelines, the experience for people who are actively buying and selling may tell a different story. Many property buyers in 2015-2017 who were looking to upgrade to a family home found that houses on a parcel of land were extremely difficult to find as the stock supply of houses were extremely low. Real estate prices were accelerating rapidly and homeowners were clinging to their property and not selling. Many of these families frustrated with the lack of family homes ended up purchasing new or near-new family size townhouses on subdivided blocks, forgoing a big backyard for a glitzy new home.
We can therefore stack the clearance rates against the volume of homes available on the market to see how the market reacts to the number of available properties.
As the chart shows, the clearance rate has increased as stock levels decrease and vice versa. Meaning that the buying audience is finite at any given moment and individual buyers are more or less selective depending on the choices they have available to them. When the clearance rate was 47% in November, there were 963 advertised auctions. Ask any real estate agent and they will tell you that there are fewer buyer attendances at inspections than when the prices were increasing however agents also notice a spike in viewings when the general sentiment is that an individual property offers good value for money or when there aren't many options of other homes for sale.
So the statistics show that the buying market is certainly there watching, waiting and ultimately they are willing to purchase so long as they feel what they are buying represents fair value.
As we move towards the Winter market in Melbourne, it is likely we will continue to see lower stock levels on the market which will present some excellent opportunities for reasonable sellers to achieve their goals in a more balanced 2019 real estate environment however it will remain to be seen what will happen when the stock levels increase when Spring rolls around again in less than 4 months.
For any real estate advice or information please contact the author Simon Wendt on 0407 040 706.
Licensed Estate Agent | Auctioneer