Auction clearance rates expected to fall below 2022 downturn levels
If Australia’s auction market is the housing sector’s canary in the coal mine – where confidence is measured one raised hand at a time – the first warning warbles are already beginning to reverberate ahead of what experts say could become the market’s biggest test in years.
This weekend, almost 2000 homes will go under the hammer – marking almost a month to the day since the budget was passed down.
Since then, clearance rates across the country have plummeted to levels not seen since the 2022 downturn as confidence-knocked buyers struggle to metabolise a global conflict, rising rates and the budget.
For economists and auctioneers, the numbers have served as the canary’s trill.
With auctions offering one of the clearest real-time snapshots into buyer and seller psychology on a week-to-week basis, the changing tune points to more than just a slowing market, but a shift in sentiment.
Experts say buyers, once gripped by fear of missing out, are now increasingly paralysed by fear of overpaying, and sellers, once happy to roll the dice under the hammer, are increasingly accepting pre-auction offers amid concerns that competition may not materialise on auction day.
Clearance rates have dropped to around 51 per cent in Sydney, 55 per cent in Melbourne and 37.2 per cent in Brisbane – levels matching or even falling below those recorded during the 2022 downturn, a period that ultimately triggered house price falls of 8 per cent in Sydney, 6.1 per cent in Melbourne and 9.8 per cent in Brisbane.
And with preliminary Domain data for May suggesting buyer demand has eased faster than it did at the onset of the 2022 correction, economists suggest this weekend could offer the clearest reading yet on whether the market’s warning song is growing louder.
As one of the best “behavioural metrics” on offer, Domain chief residential economist Dr Nicola Powell says auctions exposed confidence shifts long before broader house prices reflected them.
“They give us immediate buyer feedback – from bidder depth, to whether people are competing and whether reserves are being met,” she says. “And when buyers lose confidence, they don’t put their hand up.”
Powell says the rapid deterioration in auction conditions reflected an “amalgamation” of pressures hitting buyers simultaneously, including consecutive rate hikes, sticky inflation, rising fuel prices, cost-of-living pressures and uncertainty surrounding the federal budget’s sweeping tax reforms.
“We are seeing a poignant period in time,” she says.
“On top of that we are expecting four rate hikes this year and this can mean borrowing capacity is reduced by around $100,000.”
Powell says buyers were increasingly making forward-looking decisions based not just on current prices, but on fears around job security, future rate rises and whether prices could soften further in the coming months. And while the latest inflation data will deliver some confidence, she expects a more balanced market with some price adjustments ahead.
Ray White chief economist Nerida Conisbee says Ray White agencies had noted weakened open-home attendance, lower bidder numbers and softer auction volumes, pointing to a market increasingly defined by hesitation.
National open-home attendance is now 2.1, down from an average of 3.5 groups this time last year, while average bidder numbers have dropped from around three active bidders per auction to two.
“It’s definitely a time when people are sitting on their hands,” she says. “FOMO is over, and now buyers are fearing overpaying, but as to what we’ll see this weekend, I think it will be more of the same.”
“No one wants to be stuck buying before the bottom. And in falling markets, people tend to wait, but they don’t jump back in until they start seeing prices rise again.”
Conisbee says that, unlike the 2022 downturn, when rapidly rising interest rates were clearly driving market weakness, the current market is being weighed down by a broader cloud of uncertainty spanning tax reform, consumer confidence, geopolitical tensions and fears about the economy.
Sydney auctioneer Damien Cooley, of Cooley Auctions, says that while the market has clearly shifted from the frenetic conditions seen earlier this year, its current state is more of a transition than a collapse.
“Our clearance rate is hovering in the high 40s to low 50s – last week it was 48 and the week before that it was 54. The market has changed and it’s not as good as it was,” he says.
“In fact most indicators on how the market is performing are down, whether that’s bidder registrations, bids received or the prices owners initially set out wanting compared to where they ultimately end up.”
Cooley says many buyers were increasingly riding an “emotional roller coaster” throughout campaigns, with confidence heavily influenced by whether other bidders were competing.
“A buyer wants social proof,” he says. “They want proof others are interested.
“We are getting to auction day, and it’s more challenging to get that opening bid and more challenging to get that second bidder.
“It’s that buyer sentiment that’s the biggest challenge right now.”
While he also expects clearance rates to soften further this weekend due to the sheer volume of stock going under the hammer, Cooley says vendors were increasingly adjusting their expectations to meet the market.
“An overpriced property will not be selling this weekend,” he says.
In Brisbane, Ray White chief auctioneer Peter Burgin says the market was showing signs of cooling, but not collapse, with the city’s strong population growth and ongoing supply shortages underpinning demand.
Still, even Brisbane’s resilient market was showing subtle shifts in behaviour.
Last weekend Domain recorded one of the city’s lowest clearance rates in years – at 22 per cent.
While the city’s clearance rate is consistently low compared with Melbourne and Sydney, Burgin says a better metric of market strength was in the number of homes sold prior to auction.
In a strong market, he says, between 3 and 5 per cent of homes are sold prior to auction, with most vendors confident to test the competition under the hammer.
That figure has now climbed to about 15 per cent.
“At the moment we have properties going to auction, but if there’s a good offer prior the seller is often taking a safer position,” he says.
Burgin says bidder numbers had also thinned, falling from an average of five registered bidders earlier this year to about 2.5 today. However, he stressed that the market was becoming increasingly segmented by price point and property type.
“All in all, belief in Brisbane is still very strong,” he says.
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