Episode Details

The media loves to talk about the property market; will prices rise or fall over the next year? It’s really not that important. “Timing” the market is virtually valueless, as I concluded in this analysis last year. That said, I understand the psychology behind it. People want to buy at the bottom of the market, just before it takes off and only experience the upside.

There has been a lot of commentary recently about improvements in auction clearance rates, uptick in lending volume in July and so on. So, I thought I’d weigh into the commentary and share my views.

Looks like I called the bottom correctly

Let me begin this blog with some shameless self-promotion! In December 2018, I wrote a piece for The Australian in which I said “I believe that price growth next year will be neutral or positive”. At the time, I was only one of two people in Australia to make this public prediction (AMP Capital’s chief economist, Shane Oliver was the other).

As the chart provided by CoreLogic below illustrates, national auction clearance rates reached their lowest point in December 2018 at around 40%. Over the past nine months they recovered dramatically to be circa 70% (and mid-to high 70%’s in Melbourne and Sydney).

According to CoreLogic, national capital city house prices grew by 1% in the quarter ending August 2019, with Melbourne and Sydney leading the way at close to 2%. Therefore, it looks like the bottom of the market was in fact December 2018 when I wrote my article.

All happening with very low volumes

Property market sentiment began improving after 10pm on 18 May when the Coalition won the election. We definitely witnessed a temporary improvement in our business in terms of enquiry levels from both investors and homeowners.

This is also evident in the chart below which begins on 11 May, the week before the federal election. It sets out Melbourne’s auction clearance rate and the volume of property sold in dollar terms (data from Domain). I have selected Melbourne as auctions are more commonplace compared to other capital cities (so data is more representative).

Please take note of the very low volumes. Up until mid-July only $175 million of property was being sold each weekend, on average. It has increased to $350 million over the past two weeks. But this is still well below the peak of a booming spring market in which over $1 billion of property would sell over one weekend in Melbourne.

Property market activity (volume) is well down both in terms of the number of properties selling but even more so in dollar terms, which suggests the higher end of the market is very thin. Therefore, whilst an improvement in clearance rates is a positive signal, we need more vendors to put their properties on the market. Until that happens, it’s difficult to ascertain what is driving clearance rates higher. Is it very low volumes or an actual improvement in sentiment? I suspect both are relatively equal contributors at the m