Australia’s real estate market continued to cool in the June quarter as rising interest rates sapped buyers’ appetite, with almost one in five homes to be auctioned in Sydney removed from the market, according to CoreLogic.
The property data company said in its latest Quarterly Auction Market Review that Australia-wide auctions from April to June totalled 31,439 – the second most for the June quarter on record.
The tally trailed only the same period a year earlier and followed the most active March quarter on record, when 23,748 homes went under the hammer.
However, unlike a year ago, the clearance rate was substantially lower, dropping to 60.8%. That ratio was about a fifth lower than for the June quarter of 2021 and the lowest success rate since the September quarter of 2020.
“The latest results continue to highlight tougher selling conditions as interest rates rise and consumer sentiment remains low,” Tim Lawless, CoreLogic’s research director, said.
“The combined capital city clearance rate hit a record peak of 80% in March 2021 and has been gradually declining ever since.”
The June quarter only took in the effects of the Reserve Bank rate hikes in May and June, with the July increase excluded. Commercial interest rates, however, had been rising for half a year before the central bank’s first move, blunting the rise in property values – particularly in Sydney and Melbourne.
The latest data on home values showed prices in the two biggest Australian cities are now close to where they were a year earlier. Taking into account the inflation rate – likely to be about 6% or higher when the ABS releases June quarter figures on Wednesday – property prices on average in the capital cities were rising roughly in line with the headline CPI rate.
And as for property prices, the trend is for downward in major cities of late, with Melbourne and Sydney roughly in line with a year ago (but down in real terms if you figure inflation was running at about 6% by the June quarter). (Source: @corelogicau ) pic.twitter.com/XMst0I39QG
— Peter Hannam (@p_hannam) July 25, 2022
The changing auction activity suggests prices may ease further, particularly if – as economists and investors expect – the RBA keeps raising rates to bring the core inflation rate back to its preferred 2-3% target range.
The trimmed mean rate of inflation, which removes more volatile price changes, is forecast by the country’s biggest mortgage issuer, CBA, to come in at about 4.6% in the June quarter – up from an annual rate of 3.7% in the previous three months.
Sellers were also more likely to pull their property off the market before it goes to auction than a year earlier. “Sydney’s withdrawal rate rose from 12.9% over the three months to March, to 19.4% in the June quarter, with Melbourne’s up a less substantial 1.6 percentage points to 9.6%, with the weaker selling conditions dissuading more vendors,” CoreLogic said.
Across all capitals, the withdrawal rate was 12.75%, or up about a third on the 9.6% rate in the March quarter.
The auction rate over the quarter varied, with sellers in Adelaide faring best, notching a sale in three auctions out of four. Canberra was next best, with 68% selling at auction, ahead of Melbourne’s 61.1% and Brisbane’s 58.7% clearance rate.
Sydney lagged with a success rate of 57.2% for the June quarter, with Perth and Tasmania – where auctions are less popular – falling below 50%.
In the most recent week, the average clearance rate dropped for a seventh week in a row below the 60% level to 56.1%, according to preliminary data collected by CoreLogic.
The latest weekly stats on auction clearance rates show a downward rate of sales in Australia's capital cities, according to @corelogicau: pic.twitter.com/s9mCInrfQv
— Peter Hannam (@p_hannam) July 25, 2022
The previous week’s final clearance ratio was 53% – the lowest since early May 2020 when the first Covid wave was breaking across the country.
The ratio does vary over time, but the latest figures combined with the prospect of further rate rises to come point to lower clearance levels ahead.
Here's how the weekly clearance rates of home auctions stack up in recent years across Australia's major cities. (Source: @corelogicau) pic.twitter.com/EtjWieJe0K
— Peter Hannam (@p_hannam) July 25, 2022
Winter typically sees less auction activity but this year’s fall may be amplified, Lawless said, prompting sellers to choose other ways to shift their property.
“Potentially we could see more vendors choosing to sell by private treaty rather than auction as fewer competitive bidders make the auction process less effective at achieving the best possible price,” he said.
Data compiled last week by RateCity showed a wide spread between the forecasts of the major banks when it comes to how much the RBA will lift its cash rate after July’s 50 basis point increase to 1.35%.
By November, the cash rate will be roughly double at 2.6% according to CBA, while NAB predicted it will be 2.85% and ANZ 3.35%. Westpac forecast it will reach 3.35% but not until February 2023.
For a $500,000 loan, the monthly repayment increase would be about $908 if the cash rate was to rise two full percentage points from its current 1.35% level, RateCity said.
Ahead of Wednesday's release of June quarter CPI data, investors are predicting the RBA will lift the cash rate almost two full percentage points by December. They also rate as a three-in-four chance the central bank will shift the rate from 1.35% to 2% at its August 2nd meeting. pic.twitter.com/tHL5KSaM8p
— Peter Hannam (@p_hannam) July 25, 2022
“Borrowers need to brace for more rate pain with several substantial rises still to come,” research director Sally Tindall said late last week.
“If [the 3.35% cash rate] happens, the average existing variable rate customer could be paying 6.11% on their mortgage by early next year. Borrowers need to prepare for this new norm, rather than see it as an anomaly.”
