I keep hearing about auction clearance rates. What do they really say about the market?
Clearance rates are a fundamental cog of market trends. It is a statistic often discussed at length over coffee on a Monday after a busy Saturday of auctions. Last weekend, Canberra’s clearance rate was 68 per cent after 83 scheduled auctions. But should the clearance rate be a factor in deciding how to sell a property?
Recently I met a young family who claimed the only method to sell their first home was by auction. Choosing the right method of sale could add significant dollars to their end price and inevitably guide their upsizing journey. The only justification behind choosing to sell by auction was the fact that clearance rates were almost 70 per cent.
Like many buyers and sellers, they were confused by what it really said about an auctioneer and the market. Clearance rates are like a barometer for buyer sentiment. Anything above 70 per cent implies it is a sellers’ market. If most homes listed for auction actually sell under the hammer, it suggests the market is full of confidence and, more importantly, that there are competitive buyers who are likely to drive up prices.
It won’t come as a surprise that Canberra is in the territory of a sellers’ market. The city experienced an average clearance rate of 69 per cent throughout 2016. This figure rivals the performance of our neighbours Sydney and Melbourne.
It was a dramatic contrast five years ago when the average clearance rate was 51 per cent. A market consistently recording lower clearance rates (below 70 per cent) suggests a buyers’ market, indicating sentiment is generally low. If you find yourself in this type of market it screams negotiating territory. It is likely vendors are pricing homes above market expectation, resulting in an unsuccessful auction campaign. This offers a golden opportunity for buyers to negotiate.
A market dominated by high clearance rates could lead you to believe most homes are sold by auction. This is not the case. Clearance rates simply reflect the proportion of homes sold at auction (whether that is under the hammer, prior or just after) by the total number of reported auctions.
Take away all the hype surrounding the auction market and put the selling process into perspective. In Canberra, roughly two-thirds of homes transacted throughout 2016 sold by private treaty. Although Canberra did have a higher proportion of homes sold at auction compared to Sydney. It is also important to remember many external factors can influence clearance rates.
Like any statistic, use it carefully, together with other market indicators to help make a sound judgement and, if possible, rope in professional help.