Heads up counter cyclical Sydney property buyers. Last Saturday’s auction clearance figures expose buying opportunities in a two tier market

June 7th, 2017

Regular readers will know we are generally not a fan of Sydney auction clearance rates published by Domain and other research houses.

For years, our main concern has been the ease with which such voluntary reporting systems can be manipulated by selling agents to convey a distorted picture of market activity.

Echoing the analysis carried out in our  August 2015 CurtiseCall  and earlier, SQM Research this week also highlighted that tendency by comparing Domain’s auction clearance and auction reporting rates so far for this year with the equivalent data reported for boom time 2015.

The results speak for themselves:

Year Average auction clearance rate to 31 May % Average % of unreported auctions
2015 85.5 18.5
2017 79.7 24.7

A secondary concern is disguising sales prior to a scheduled auction (SP) and sales after auction (SA) as sales under the hammer at auction again to convey an impression of market strength.

However…

Auction results, even preliminary ones like these, can sometimes be useful canaries in the mine shaft. Last weekend was a perfect example.

Alerted by a 74% auction clearance rate produced by a suspiciously pathetic 30.4% unreported auction rate, we were once again struck by the still high number of SP which accounted for 21.4% of the 445 properties reportedly sold. Given our secondary concern as discussed earlier, that  21.4% is itself likely to be an understatement.

Properties sell prior to auction for two reasons.

One, the vendor has received an offer that’s too good to refuse. In this current market downturn, that is almost certainly not the reason for last Saturday’s spike in SP.

Two and much more likely in this market, motivated vendors worried that no one will turn up and bid at their auction.

Given that SP occur for the same reasons as auctions which are passed in (PI) whether on a vendor bid (VB) or not, withdrawn from sale (W) and even SA, we thought it would be interesting to segment last Saturday’s preliminary auction clearance results into:

  • Category A: the number and location of sales with no SP, PI, VB, W or SA. In other words, to isolate the number and location of properties reported as having sold under the hammer last Saturday versus
  • Category B: the number and location of sales with all SP, PI, VB,W or SA. In other words, to isolate the number and location of properties reported as having not sold under the hammer last Saturday.

Here is a summary that reveals a minor Eureka moment:

Of the 445 reported sales Of the 249 reported suburbs Suburbs within 5 klm of Sydney CBD Suburbs 5 -10 klm of Sydney CBD Suburbs 10 – 15 klm of Sydney CBD Suburbs 15 + klm of Sydney CBD
Category A 95 22 1 2 7 12
Category B 79 29 10 11 3 5

 

Those results understate the extent of vendor weakness in the inner ring with Mosman, Neutral Bay and Newtown each coming within one transaction of being included in Category B followed in the east by Maroubra, Paddington, Randwick, Coogee, Redfern and Surry Hills as well as Enmore, Erskineville, Haberfield and Camperdown in the inner west.

With just one exception (seemingly ever resilient Strathfield), the same goes for the more expensive outer ring suburbs of Killara, Roseville, Wahroonga, Davidson and Frenchs Forest.

While this snapshot of the first winter Saturday may not a whole winter make, the picture which emerges  is consistent with recent, more detailed analyses by Digital Finance Analytics (DFA) and others. In a report published last Monday, Martin North from DFA noted: “Analysis across our household segments highlights that stress is touching more affluent groups as well as those in traditional mortgage belts”. The same report identified  14,321 Sydney households now in severe stress and 113,912 in mild stress.

It is also consistent with the effervescent inner west sales agent we have been following whose latest blog last Sunday evening reported:

“Auction day yesterday and the results are all over the place. Many were sold before auction, a few sold on the day but many were also passed in or withdrawn from the process all together [sic]… One thing I can see, buyer urgency isn’t the same as it was a few months ago so what does that mean? Buyers aren’t just going to swarm to a property just because it’s listed and uploaded onto the internet. The days of a property selling itself are gone!”

And it’s not anecdotal: having crunched the numbers from all local agencies without the sophistry of Domain’s adjustments to the data, another inner west real estate agent has just reported a paltry 52% auction clearance rate for the week in that region.