The auction market was tipped well in sellers’ favour. That’s changing

The share of successful auction sales has slumped as potential property buyers worry about the risk of future interest rate rises, new figures show.

Buyers also have more choice of homes for sale after an unusually large amount of owners decided to sell this spring.

The monthly auction clearance rate for November fell to 63 per cent in Sydney and 63.4 per cent in Melbourne, on Domain data.

As recently as September, the result was 71.2 per cent and 69.3 per cent respectively.

The figures come amid a reversal in interest rate expectations. The Reserve Bank on Tuesday kept the cash rate on hold at 3.6 per cent and warned that inflation has picked up recently. A few months ago, economists thought there could be more rate cuts to come, but now some warn the next move could be up.

Domain chief of research and economics Dr Nicola Powell said there had been a higher volume of homes for sale by November, a record high in Sydney, and the highest since December 2021 for Melbourne, as well as the shifting outlook for interest rates.

“We have seen an increase in auction volumes and I think what that has done over the month of November is really tested buyer depth,” she said.

“Buyers are starting to be a little bit more cautious, to not get carried away at auction and not overspend, not overcommit – we have seen such a flipped narrative for the expectations for the cash rate.

“Once you start to talk about a rate hike, that can generate nerves. What that does for buyers is they can think twice, second-guess themselves.”

A result of about 63 per cent remains in the territory of a sellers’ market. At about 60 per cent, the auction market is considered balanced, and when the result is higher, prices are likely to be rising. A result of 70 per cent is correlated with rapid price increases.

Powell noted that the auction market last month stronger than at the same time last year, when the clearance rate was 58 per cent in Sydney and 57 per cent in Melbourne. Prices are likely to rise, but perhaps not as fast as a few months ago.

Separate figures from Cotality found national home values rose 1 per cent in November, albeit a fraction less than October’s 1.1 per cent gain.

There have been signs of the market getting even weaker more recently. In the first week of December Sydney’s preliminary clearance rate fell to 59.4 per cent, while Melbourne’s was 64 per cent. The preliminary clearance rate is usually revised down later as more auction results are collected – especially from agents who fail to sell at auction and are more likely to submit their results late or not at all – so these figures could fall.

In Sydney, auctioneer Edward Riley of the eponymous agency thought there were signs of a seasonal slowdown as the property market heads towards its summer hiatus, but the change in rate expectations was weighing on buyers, too.

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“That’s probably put a little bit of a handbrake on some people’s decision-making process,” he said.

“That fear of missing out when there was expectation of another potential rate cut coming – buyers had that fear of ‘if we don’t get in now, there’ll be another rate cut next year and the market will take off again’.”

He said the auction market was still healthy and there was plenty of interest for unique or standout homes but bidder registration numbers as a whole had dropped off a little.

“Agents are really having to work to get the property sold. I think vendors’ expectations are still a little bit high and bridging that gap between vendor expectations and buyers wanting a bargain, finding a middle ground, has been a bit of a challenge,” he said.

He has noticed it has become harder to get an opening bid as buyers wait and see, and that some agents are delaying auctions for a few weeks while they revise their price guide, which had largely resulted in sales.

In Melbourne, Ray White chief auctioneer for Victoria and Tasmania Luke Banitsiotis said his agency is recording an average of 2.6 active bidders per auction through November and 3.1 registered – still healthy but a slight decrease in the month.

He said when the recent hotter-than-expected inflation data came out, some people had taken a wait-and-see approach that week, but then he thought the market returned to normal.

“It feels like at the moment the market is quite balanced. If you want to sell on the market, take on that feedback, set a reserve in line with that feedback, you can sell it,” he said.

“It isn’t a market rapidly running away on buyers.”