Don't believe reported auction figures

Posted on 21/11/2009  
Research by Brisbane property analyst Michael Matusik confirms something that I’ve known for some time – that we cannot trust the auction clearance rates reported by media.
Matusik says agents “stack” the results by withdrawing properties unlikely to sell at auction and omit properties which failed to sell on auction day.
He says what I’ve been saying for years: that clearance rates are over-rated as a barometer of the market.
“Auction clearance rates are not what they seem to be,” says Matusik. “Clearances are the most commonly-cited benchmark for the relative health of the residential property market. Unfortunately, they are not really understood. 
“Those behind the housing gravy train would have us believe that a high clearance rate (which has averaged over 80% in Melbourne over the last five months, for example) is emblematic of a stampeding real estate market.  So persuasive is this argument that this month’s national financial press ran stories claiming that the recent strong auction clearances gave the RBA further reason to lift interest rates.
“Yet a different picture emerges when you analyse the sales data.” 
Matusik says only 14% of residential property is advertised for auction across Australia and 85% of these auctions take place in Melbourne and Sydney.  Brisbane’s market share is just 7%.  Also, he says, clearance rates tell us the reported percentage of auctions that were successful. 
“From personal experience (which is backed up by every real estate agent we have spoken to), if a property is unlikely to sell at or very soon after the auction, the property is withdrawn and sold either via private treaty or auctioned again but at a later date.  Hence, only properties likely to sell at auction go to auction.  Talk about stacking the deck. 
“Also there is considerable evidence to suggest that about one in ten unsuccessful auctions are not reported.  Last week alone Australian Property Monitors found that 124 auctioned properties went unreported in Sydney.  In Melbourne it was a whopping 332. These were left out of the reported clearance rate.”
Recent research by Victorian-based Wakelin Property Advisory found that while Melbourne’s current auction rate is higher than the 66% registered during 2008, the number of auctions that ended in a successful sale is down nearly 20% from last year and down 34% from 2007. 
“The fear that home buyers need to buy now to “get into the market” is being underpinned by these grossly-exaggerated clearance rates.  It is a sad sign of the times when an auctioned property is ‘won’ rather than purchased.”

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