Recognising when supply and demand imbalance affects sentiment….

Market sentiment is a powerful force indeed.

Reports in the media of lower auction clearance rates and slight drops on the median price of houses could give any nervous investor reason to be cautious.

December figures for our two biggest capital cities certainly caught reader’s attention, but seasonality wasn’t broadly discussed. 

And it should have been.

In 2017 Melbourne’s housing market experienced a particularly busy auction period in the run up to Christmas, partly due to Vendor’s continued late Spring starts after the AFL Grand Final, and partly due to higher stock levels than prior years.

Just over 52,000 auctions were scheduled in 2017 and interestingly ~8980 fell within a five week period (from 18th November until 16 December).

Five weeks represent 9.6% of the calendar year, yet these five weekends represented 17.3% of auctions for the year.

The numbers of auctions were high and it’s important to remember what most people find themselves doing at this time of year…

In essence, we had particularly high auction numbers and a fewer number of buyers as Christmas preparations took hold.

This was a classic case of supply and demand being altered. No wonder our auction clearance rates dipped in December to 65%.

I would have anticipated it could have been even lower considering the market timing.

The auction clearance rates are an excellent indicator for our market conditions, but like many sources of data out there, auction clearance rates should never be taken as the only indicator for the health of our market.

Considering the clearance rates in tandem with auction numbers and the time of year is essential.

Melburnian Vendor’s seem to loathe winter sales. Maybe it’s the idea of having mud traipsed through the house, or perhaps it’s the lingering thought of waiting it out for just two more months when the garden is in full bloom. For many, it’s the desire to sit out the football season and get Little League and local footy out of the way. The auction numbers all dipped well below 1000 per Saturday in July and August and for those who were in the market at that time, sentiment was strong and buyers were hurting when competition stole the prize from under their nose.

Interestingly one of our lightest auction weekends in 2017 was AFL Grand Final Day with just 133 scheduled auctions. Whether we like it or not, AFL strongly features in Victoria’s market seasonality, not just school holidays and public holidays.

Our biggest super-Saturday was on 28th October; the bumper weekend before our much awaited Cup Day ‘long’ weekend (for all of us who capitalise on a leave day on the Monday). That weekend delivered an auction clearance rate of just 68% (a lower point for Melbourne when benchmarked against the 70+ figures for almost all of July and August), but the very next weekend boasted a 75% clearance rate – even when most of Melbourne could have been expected to be away on long weekend trips.

Supply and demand is critical to consider.

Analysts, commentators and journalists have been reporting with mixed views on our market as we head into 2018.  Based on the last weeks of our auction year, I believe it’s too early to suggest that Melbourne is experiencing a market correction or downturn.

Yesterday’s first official auction day still offered relatively low auction numbers, and a healthy clearance rate figure of 73% (as at Saturday night) to accompany it. What did feel palpable was buyer energy and competition. I certainly had to fight for the prize yesterday and other advocates I chatted to felt the same.

Whether our market stays above 70% clearance rates through February is yet to be seen…. but one thing we can expect is a decline again in March due to higher volumes prior to Easter and Labour Day long weekends.   

It just makes sense that higher volumes equate to lower clearance rates. Days on market, discounting levels and any significant legislative announcements or elections are just some of the other variables to consider in tandem.

Credit to Core Logic for tables