Auction Clearance Rates

Here’s a typical example of THE Monday morning real estate headline these days:

Buyers flock to weekend auctions

Preliminary data from CoreLogic shows that Sydney’s residential market recorded an auction clearance rate of 77.2 % on the week of the 8-14 July, compared with 46.9% at the same time in 2018.

Melbourne’s preliminary clearance rate was 73.6%, up from 56.2% a year ago.

Real estate agents cite factors such as recent official interest rate cuts and positive sentiment in the wake of the federal election for the higher-than-usual winter sales activity.

Source: Australian Financial Review – Page 5: 15 July 2019.

But what is really being measured here?

Of course, caveats apply, and they include the following CoreLogic rules.

Auction clearance rates are calculated for auctions scheduled during the week ending Sunday and are based on available data using:

  • Total known number of sold properties before, at or after auction,
  • against the total known number of auction results, including passed in and withdrawn auctions and
  • not all auction results are available or known to CoreLogic at the time of calculation and reporting of auction clearance rates and auction property details.

Fair enough.  Well maybe?

In preparation for writing this post I asked some 50-odd people – many in the property industry, some novices and others with no interested in real estate at all (yes, they do exist!) – what they thought an “auction clearance rate” actually meant.

Nearly all replied something along these lines “the property was sold at auction…on the day…under the hammer…and at or above the reserve price”.

Well my friends it means nothing like that at all.  In fact, the actual results are as clear as mud.

At the time of writing the final results for the week of the 8-14 July weren’t available, so I have used the results for previous week instead.  It matters not.  My findings will be the same.

And I want to zero in on the Sydney house auction results. Again, my findings apply to all markets outlined in the table below.

Here’s my summary

  • 72% promoted auction clearance result (I have rounded up to the nearest 1%)
  • 242 auctions
  • 213 “results”
  • 213/242 = 88% (So why isn’t this the promoted auction clearance rate given the caveats outlined above?)

Breaking things down further:

  • 53 sold prior to auction
  • 98 sold at auction
  • 2 sold after auction
  • Totals 153
  • 153/242 auctions = 63%

But wait there is more!

  • 44 passed in
  • 16 withdrawn
  • Totals 60
  • 60 + 153 = 213 “results”

I do wonder what has happened to the missing 29 (242 minus 213). This isn’t a small number as 29 represents 12% or 1 in 8 houses listed for auction that week in Sydney.

One assumes that these 29 houses are still for sale.

So, at best the results are 63% and not 72% or even 88%.

But given what my straw poll suggests, most think the auction clearance result should be actually 40% i.e. 98/242.

Relevance

Also, auction clearances only seem relevant in select markets.  These include Canberra, Sydney, Melbourne and to some degree Adelaide for detached houses. Also, they have more relevance to house sales rather than apartments.

The table below shows why.

Total auctions as % of estimated sales during week of 1-7 July 2019
Capital city House sales Unit sales
Adelaide 20% 4%
Brisbane 7% 3%
Canberra 62% 19%
Melbourne 23% 22%
Perth 4% 1%
Sydney 28% 17%
Hobart 3% 0%
Total capital cities 19% 15%

End notes

There is little doubt that the promoted auction clearance results – regardless of the exact measurement – have improved in recent months.

There is also a past strong relationship between the change in median house prices in Sydney and Melbourne and the promoted auction clearance rate results.

Yet I cannot help but think that this indicator is touched – like too many things in the property space these days – with more than its fair share of fraud.

It pays to understand what is actually being measured.

Why the so called financial press don’t stop and investigate the material released to them is beyond me.  It used to happen once upon a time.  Seems like The Eagles were right with their line “journalism’s dead and gone”.

Until next time,

Michael Matusik

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