Auction clearance rates on a growth trajectory as buyers confront slim pickings

Melbourne’s residential real estate market looks to be on the fast track to improved health. In many suburbs, the number of bidders competing to buy auction properties has increased significantly as buyers recognise they’re dealing with a stock-constrained market that is only likely to tighten further.

The auction clearance rate is going up, too – a trend pointing to higher levels of buyer confidence.

The Melbourne clearance rate for March was 48.9 per cent, by contrast to 61.8 per cent over the same month last year, according to Domain Group data.

However, throughout April the weekend auction clearance rate has mostly been in the 55-to-60 per cent range, and inner-city areas are performing significantly better.

Nelson Alexander Sales Director Arch Staver says the agency’s auctions in the inner city are typically generating an 80 per cent clearance rate.

He says those properties that do not sell on auction day are generally sold within the next week.

Post-auction sales data from Domain also shows close to two-thirds of properties – 63.3 per cent – selling in the six weeks following the auction, with some inner-Melbourne areas strongly outperforming the market in this regard.

In the current climate, superior homes are increasingly surpassing their reserves by significant margins, in large part because fewer of these A-grade properties are being listed for sale.

“The auction clearance rate is going up, and there is likely to be very little for sale in the winter months,” Mr Staver says. “We are already starting to see some very strong results.”

He says there have been plenty of recent instances in which listed properties have exceeded their adjusted reserve prices.

These are reserves set by homeowners who have listened to commentary on the market and adjusted their expectations to 2016 prices.

“Where sellers have made that adjustment, buyers have often competed heavily and pushed the final result to 2017 prices,” Mr Staver says.

“There is a recovery based on value: people don’t stop buying, they are just looking for value.”

It’s the stand-out homes that are increasingly punching above their weight.

Mr Staver recently auctioned a three-bedroom terrace house on a corner block at 472 Napier Street in Fitzroy. The auction drew more than 100 onlookers, including five bidders, who pushed the sale price more than $200,000 above reserve.

A flurry of bids propelled the price past the top of the quoted price range of $1.1 million to $1.2 million, with the reserve set at the top end. The property sold for $1,415,000 – $215,000 above reserve.

Most economists and property watchers say Melbourne’s market has now well and truly “bottomed”. Data analyst group CoreLogic ranks the bottom of the market as December 2018, while other observers locate the bottom point somewhere between September 2018 and early-March this year.

Capital-city auction markets resumed after Easter with positive overall results.

But listing numbers remain subdued as holiday distractions continue to dampen seller participation, and sellers who don’t need to sell choose to stay put.

The market, though, is continuing to see a contingent of purchasers holding back – sometimes to their detriment.

These would-be buyers can end up missing out on good-quality properties that are advertised at fair-value prices because they feel can still get them for a cheaper price. 

It’s critical to remember that although overall conditions favour buyers this does not mean that the advertised price doesn’t represent good value. Buyers run the risk, by not being prepared to pay an asking price, of allowing good-quality properties to be snapped up by other buyers, whether at auction or in negotiations.

Mr Staver says the big sale in Fitzroy’s Napier Street showed buyers were starved for A-grade homes in top-notch locations.

“We do think that value is there – it is screaming out at buyers,” he says.

“If they choose to listen, they can really seize some opportunities. But if they want to sit back and wait, they will probably end up transacting in a market-place that will not give them any choice.”