‘Sellers’ market’: Auction market hits the strongest point in two years

The auction market has reached its strongest point in two years as interest rate cuts prompt buyers to compete for homes.

Potential sellers have been slower to react to falling interest rates, meaning there are fewer homes for sale than last year and making the imbalance between supply and demand even bigger.

Sydney’s auction clearance rate reached 72.3 per cent and Melbourne hit 69.7 per cent in August, on Domain data. This was the strongest for both cities since June 2023.

An auction clearance rate of 60 per cent is considered a balanced market between buyers and sellers, and a higher result indicates prices are likely to be rising. Monthly results can be a few percentage points lower than the weekly clearance rate, once more sale prices are tallied by researchers.

Domain chief of research and economics Dr Nicola Powell said both markets were responding to the lower cost of borrowing. The Reserve Bank cut the official cash rate three times this year, to 3.6 per cent, and economists expect more cuts.

“Both Sydney and Melbourne are very sensitive to changes in economic conditions, and the reduction in the cash rate has been amplified through their markets much quicker than other capital cities,” Powell said.

“What you’ve got is a reduction in stock at a time when the clearance rate is starting to rise … spring has started with a foundation of a lack of supply and that is coming out through those clearance rates, and confidence is rising as well.”

Powell said clearance rates in the high 60s or low 70s start to generate pressure for buyers to purchase sooner rather than later before prices rise further. A market this strong could also encourage home owners to sell.

But she warned the market is not in a boom as there is a wide gap between property prices and many buyers’ capacity to pay for a home. If the Reserve Bank decides against further cuts to the cash rate, that could temper the pace of price growth, she said.

By region, Sydney’s auction market was strongest in the eastern suburbs (78 per cent clearance rate) and the Sutherland shire (75.9 per cent).

In Greater Melbourne, the Mornington Peninsula picked up to a 77.8 per cent clearance rate, followed by the outer-east at 74.1 per cent.

Westpac senior economist Matthew Hassan agreed the auction market was responding to lower interest rates as buyer sentiment became less pessimistic at the same time as fewer homes were for sale.

“Buyers can be quicker to respond to shifting conditions than sellers. It takes a while to organise a property for sale,” he said.

“It looks like we might be caught out a little bit. At the moment, the opening weeks of the spring selling season are seeing demand outstripping supply.”

He said the market is “warming up” – albeit differently across different sub-markets – but not “really stretched”. In a hot market, auction clearance rates can go over 80 per cent.

“It’s a sellers’ market and the demand response is telling us it’s going to become even more so, near term.”

Sydney auctioneer and Cooley Auctions founder Damien Cooley has noticed more registered bidders at auction and more properties selling at or above their reserve prices.

He said many homes scheduled for auction are selling prior, adding the market is property-specific, and noted that more homes will be for sale in spring which will provide a test of the market’s strength.

“It’s generally a challenge to get the first bid, but once you get the first bid, it’s moving pretty quickly,” he said.

“More buyers are willing to open the bidding than they were last year.” Among his company’s Sydney auctions, 7 per cent opened with a vendor’s bid in August, compared with 19 per cent in August last year.

In Melbourne, Barry Plant chief executive Lisa Pennell said the market had entered its next cycle.

“For some time now the momentum has been building – the early signs were there a few months ago,” she said.

“It’s still a little segmented as it is at the beginning of any upward cycle.”

She said well-priced and well-presented stock has been in demand, given the shortage of tradespeople available to renovate homes needing updates.

“Properties that don’t need work and are well priced are going to attract the most amount of attention and most amount of competition,” Pennell said.

“There is a lot more stock coming to market, so there’s a lot more confidence broadly in the market … I think [prices] will be now playing catch-up.”