The Spring supply and demand ratio

Melbourne’s auction clearance rates are still sitting between 50 and 60 per cent and at the coal face, many properties are passing in and selling after auction.

Our auction clearance data is inconsistent depending on where it is sourced from and how sales are counted. 

Core Logic count all sales including prior to auction, post auction (on the day) and those proprerties sold under the hammer.

Domain’s data provider, APM report a slightly different figure which possibly reflects a lesser number of post auction sales and the formula APM used is shown on their site as follows:

Despite the discrepancy, two things are obvious.

Spring is delivering higher stock levels. The chart below shows Victorian auction numbers from the start of Winter 2018 to now. Factoring in the two troughs (Queens Birthday weekend and AFL Grand Final weekend), the numbers of properties going to auction are strong by any measure. This weekend almost tipped one thousand auctions. This high supply, combined with lower market sentiment and less lending approvals is giving way to some strong buying opportunities.

Auction numbers from Winter to now

Spring always offers buyer opportunity and this spring offers even more so.

Our auction clearance rates are low and many properties are passing in… not just the compromised properties. Good properties are passing in too and the main cause of this relates to consumer challenges with obtaining finance.

We are seeing many situations where sales campaigns seem to be attracting good buyer numbers and agents are fielding requests to send out contracts to interested buyers, but on the day of the auction surprises are arising. 

Not only are the lenders so much tougher on how they are calculating servicing for borrowers now, but their timelines for credit assessment have blown out since the Banking Royal Commission. Assessors are wading through applications, supporting documentation, credit card and bank statements and tax returns in high detail.

It is little wonder that a process which used to take a week or so is now taking closer to a month.

Buyers who confidently approached an auction campaign with the view to bid with firm pre-approval are finding that they aren’t in a position to bid on auction day because their application is still in progress or they’ve hit hurdles that they didn’t expect with their finance attempts.

For those buyers, many are opting out of the auction runnings altogether and agents are often surprised to find a diminished crowd with their key buyers missing in the crowd.

While the situation is quite alarming for vendors, our changed market conditions are enabling buyers some interesting opportunities on two levels;

• Buyers who are in the fortunate position of holding a firm, credit-assessed pre-approval are at an advantage. They can bid confidently and in this environment with lower competition, and their ability to beat their competition is much stronger. In the face of an auction pass-in or a private sale, their unconditional offer is far more powerful than a conditional offer from an opponent buyer.
• Buyers who don’t have their finance finalised have a far greater chance of securing a property on a pass-in; and during the negotiations inside, they can take the opportunity to negotiate a conditional offer, (as opposed to missing out on the property altogether).

Yesterday two clients of ours purchased post-auction on the respective pass-in bids. One in particular had not planned to bid until late and after scrambling to arrange a Friday night solicitor to review the contract, we were able to negotiate a building and pest inspection into their terms for them. 

Over the last few weeks we have also helped clients buy their desired auction properties with finance clauses and other conditions that have given them comfort in this tougher climate.

This double fronted Victorian beauty in Yarraville which backs onto a park was  secured last month after our clients surprised themselves by falling in love with it half an hour before auction. On a successful pass-in bid we were able to help them negotiate after auction with the terms and conditions required to give them confidence to proceed conditionally.

Taking advantage of the chance to buy with conditions in place is valuable for buyers who are less prepped or concerned about the need for more due diligence.

Unlike past years, we now have an environment enabling us to take on less risk.

And with higher supply levels and diminished demand this Spring, we really do have to ask ourselves if now is a good time to buy.