Rates hit lowest level since 2020 in Sydney and Melbourne amid CGT changes
Updated ,first published
The monthly auction approval rate has reached its weakest level since 2020, but there are signs that the market is starting to stabilize.
But that doesn’t mean prices will stop falling anytime soon; it’s just that home sellers are starting to realize they can’t stand yesterday’s prices if they want to sell.
There is also a seasonal effect of the decrease in the supply of homes for sale during the winter months, as well as a decrease in demand from home buyers, which means that there is no guarantee that the recent stability will continue in the spring.
Sydney’s auction approval rate fell to 48 per cent in June, according to Domain figures; this was the lowest level since the lockdown in April 2020, when auctions were canceled en masse, reaching 36.2 percent.
Melbourne’s monthly clearance rate reached 46.4 per cent, falling to 52.3 per cent, the lowest since the city was locked down in September 2020.
Monthly figures provide a more comprehensive picture of the market than preliminary data released on Saturday evenings, due to higher sales and direct sales results reported to researchers. Agents who don’t sell their homes under pressure don’t always rush to report these results.
The auction market in both cities has weakened since the beginning of the year. Approximately two-thirds of the houses planned to be auctioned in February were sold in line with increasing prices.
This rate soon dropped to 60 percent, the level at which the market is considered balanced between buyers and sellers. It then entered a period of decline, and a separate study shows home values falling in the two largest cities.
There was a perfect storm of factors. As the year began, home buyers hoped interest rates would remain steady; Just a few months ago economists were predicting further cuts by Christmas 2025, but that never happened.
Instead, the Federal Reserve raised the cash rate to 4.35 percent three times through May, reducing the amount buyers could borrow.
The US-Iran war shook confidence and increased oil bills; thus buyers have become more careful about their own budgets; before the federal budget changed the rules on investor property taxes.
Some investors instead put their plans on hold.
Despite the weak liquidation rate in June, there are signs that the auction market is stabilizing.
Early readings of the clearance rate over the past two weekends have hovered above 50 percent. It will likely be revised downwards as more results come in, but it has not returned to the 47 per cent Sydney reached three weeks ago.
Some sellers were willing to lower their prices in the hope of selling at auction rather than allowing the property to be transferred.
Once sellers see the market falling, they may be tempted to set price expectations at a realistic level and secure the sale. This may support the liquidation rate, but if price prospects are lower than they were a few months ago, property prices will continue to fall.
The other factor currently holding back a lower liquidation rate is that there are fewer homes for sale in the winter. Buyer demand has decreased compared to the end of summer, but the number of planned auctions has also decreased.
Homeowners traditionally prefer to sell in the spring when their gardens are in bloom.
And the biggest unknown will be spring. There may not be as many buyers, but the volume of sellers is less clear.
AMP chief economist Dr. Shane Oliver points out that July, when stocks are short, usually sees a seasonal spike in the clearance rate, but there could be more.
“I think this is partly seasonal and we owe it to sellers pulling their properties out of the sale on the grounds that they want to get a higher price,” he said.
If this hesitation continues, there may not be as many homes for sale this spring as usual, as property owners who don’t need to sell may decide to wait.
But Oliver recalls the downturn from 2017 to 2019, when a crackdown on investor lending was combined with a financial services royal commission and concerns about changes to negative tax breaks. After a while, Oliver said, some dealers “decided I better throw in the towel and get out.”
He says this could happen again as sellers sell rather than wait and risk a lower price.
On the demand side, he expects investors to hold back from buying until they get lower prices or higher rents. A clear signal that the Central Bank has stopped raising interest rates could also provide support, but Oliver notes that this point has not been reached yet.
“I think it’s too early to say that the clearance rate has bottomed out. I suspect it will remain weak for some time,” he said.
Domain chief housing economist Dr. Nicola Powell disagrees and tips sellers to pull back; it’s a trend he’s already starting to see.
“I would be very surprised if we see Sydney drop more than 48 per cent because I think you get to a point where sellers are going to say, ‘Conditions aren’t right, I’m holding off,'” he said.
“I guess if you only had a realistic price in mind you would list your house for sale.”
Elizabeth Redman is national property editor of The Age and The Sydney Morning Herald.Connect with: X or email.
