Brad in The Australian Financial Review
Tighter lending driving Sydney's auction clearance rates towards 50 per cent
The Sydney housing market has dropped close to an auction clearance rate of 50 per cent, among its lowest points since before the most recent boom began, as it continues to grapple with tighter lending standards and weaker supply and demand.
The city's auction clearance rate closed at a preliminary 52.3 per cent at the weekend.
Melbourne's market, meanwhile, proved more resilient, with a clearance rate of 61.6 per cent, although both were lower than comparable weekends in the previous year, Corelogic data shows.
Sydney's rate is likely to come down further, to around 47 to 49 per cent, when final results on unreported auctions are collected this week, agents and experts say.
The lower volume of auctions compared with the same time last year – Sydney's are nearly 20 percentage points lower, while Melbourne is off 9 points – is also evidence that many buyers are retreating from the market or taking their listings away from auctions into private sales, agents say.
However, the "winter effect" – less stock on the market as the main selling season comes to a close – also has to be taken into consideration because it further dampens auction clearances.
"It's the push by the banks for borrowers to properly account for expenses [on loan applications]," property research group SQM Research managing director Louis Christopher said.
"Previously, banks knew about borrowers fudging expenses but now they can't turn a blind eye, especially with the banking royal commission going on. That's affecting new as well as existing borrowers."
The tightening credit conditions are affecting both owner-occupiers and investors, with the latter hit harder because they are more "momentum oriented", Mr Christopher said.
Sydney's average house prices have now fallen 4.1 per cent for the year to May while Melbourne's have posted subdued growth of 2.2 per cent in the year to date, compared with galloping double-digit growth during the boom of 2012-17.
"Low confidence in the market means more buyers are standing on the sidelines," Mr Christopher said.
While the prospect of an interest rate rise once affected appetites for loans and property purchases, now it is tighter bank lending and even the chance of a negative gearing reform that are hurting buying decisions, he said.
"A 50 per cent auction clearance rate is a tipping point, the balance point, but let's see if it's seasonal. For me, as soon as it drops below 60 per cent, it feels more like a slide," Sydney eastern suburbs agency 1st City managing director Brad Caldwell-Eyles said.
But a 50 per cent rate was not "catastrophic", Mr Brad Caldwell-Eyles said. "In this country, it will take a diabolical change in affordability ... there has to be a dire position before it crashes."
Despite the broader picture, lucrative market areas such as Sydney's eastern suburbs and lower north shore are still churning well.
For example, a four-bedroom house at 20 Wilona Avenue, Greenwich, on Sydney's lower north shore, sold for $5.75 million at the weekend.
Bellevue Hill's 1416-square-metre house with "Mediterranean overtones" at 14-16 Drumalbyn Road also sold post-auction at the weekend, at around $16 million. The price was confidential but it was passed it at $16.2 million, The Agency's Ben Collier said.
Sydney's weakest suburbs were Ryde, the south-west and Blacktown. In Leichhardt, in the inner-west, one home owner told The Australian Financial Review he had been approached by at least 10 agents to sell his house recently, after many of them hadn't contacted him in 15 years. He said it was likely agents were trying to secure commissions through more listings, as homes sell at a slower pace.
Emma Bloom, from Melbourne buyer's agent Morrell & Koren, said auctioneers were pulling out all stops to get the tiny number of bidders to raise their paddles. Many agents were also hitting the panic button and selling before auction.
"If you put in any bid, it's yours," she said. "Everyone's standing around with their hands in their pockets."
Similar to Sydney, tighter lending standards and fewer investors were driving weaker auction results in Melbourne. "We haven't seen investors for quite a while," Ms Bloom said.
On the flipside, her clients are getting a good deal. One client is negotiating the purchase of a premium townhouse at 33 Albany Road, Toorak, at the lower end of their price range. It was passed in at the weekend.
Inner Melbourne did well in auctions, selling at 70 per cent, but the inner east and south had clearance rates in the mid-50 per cent.
Adelaide was the best performer among the capital cities, with 68.2 per cent of nearly 100 auctions selling.