You might be wondering why there is such a fascination with reporting auction clearance rates every Sunday. After all, the number of properties sold by auction accounts for only a proportion of all properties sold in a given week.
So, why are the auction results so hotly anticipated?
- Lead Indicator – The auction clearance rate can be a lead indicator of the health of the property market as so many properties in Sydney and Melbourne are sold through this method.
- Price Movements – There is a strong correlation between clearance rates and annual house price movements.
- Weekly Results – The information is available every week, so it is easy to track trends and fluctuations over time.
- Barometer of Market Sentiment – Another reason is the results provide an indicator of market sentiment. High clearance rates are a result of strong buyer demand and consumer confidence. Auctions numbers, as a method of sale, also increase as prices start to rise as they are perceived as the best method of sale to capitalise on strong competition. If competition is low, private treaty is more often used.
- Buyers’ vs Sellers’ Market – The results also indicate if it is a buyer or a sellers’ market. In a ‘normal’ market, clearance rates are between 60% and 70%. When results are above 70%, it is an indication of higher consumer confidence and higher prices are achieved as demand increases. This means it is more of a sellers’ market and a growing market. Conversely, when auction clearance rates are low such as low or below 60%, this indicates lower demand, and it’s a buyers’ market and the market is slowing.
- How Clearance Rates Are Calculated – The clearance rate reports the number of properties sold before or at auction during the week. Properties not captured in this number are either passed in or withdrawn or withdrawn from auction. Note that different property listing agencies use different calculations.
- Seller Confidence – The number of properties withdrawn from sale is also an indicator of seller confidence and may result in reduction of price expectations or withdrawal of the property from the market.
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