Auction clearance rates plummet to lowest level in six years as buyers walk away

Home buyers remain spooked by planned tax changes and the impact of three interest rate rises, with the auction clearance tumbling below 50 per cent for the first time since the COVID-19 pandemic.

Figures from property research firm Cotality shows the preliminary clearance rate in the capital cities last week slumped to 47 per cent.

It was the first time since April 2020 - the early stages of the Covid health emergency - that it had fallen below 50 per cent. 

The gloomy figure is well down on the 60 per cent for 10 of the past 12 weeks.

It could prove to be even worse when the final results are released on Wednesday.

Sydney - the country’s largest property market - has born the brunt of the downturn.

Are you holding off selling your property due to the downturn? We want to hear your story. Email reporter Richard Wood at riwood@nine.com.au

Cotality data shows Sydney hosted 645 auctions last week, a 17.5 per cent drop on the number of auctions held the previous week. From those, 47 per cent have reported a positive result so far, the lowest preliminary clearance rate since the week ending April 19, 2020.

Other capital cities reported less steep declines. Melbourne held 910 auctions last week, 6.7 per cent fewer than a week ago, while Brisbane held 142, level with the number of the previous week.

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Property buyers have been making a painful adjustment to changes unveiled in the May federal budget to regulations concerning negative gearing and capital gains tax.

From July 2027, a minimum 30 per cent tax on capital gains will be brought in, while negative gearing on residential property will be limited to new builds.

Earlier this year, property buyers were left reeling by three consecutive interest rate rises. Last week, the Reserve Bank kept kept them at 4.35 per cent.

Cotality is forecasting number of auctions to drop further over the coming weeks – partly a seasonal trend, but also likely a factor of weaker selling conditions.

This week there are 1800 auctions on the books, reducing to less than 1500 next week.

‘Adjustment’ looming for Aussie property, experts say

Economic experts now predict that an “adjustment” is coming for the Australian property market, which has seen stratospheric growth following the COVID-19 pandemic.

Deputy Chief Economist at AMP Diana Mousina says that they forecast house prices to drop by around 5 per cent.

“We expect property prices to fall by around 5 per cent overall, which is sort of around the middle of the usual range of price falls (see the chart below) and the 5-year average will look low relative to history,” Mousina wrote.

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“However, we don’t expect continuous falls in prices. Eventually, affordability will look better and drive more demand into the market.”

Mousina argues that such an adjustment isn’t a harbinger of doom, but rather a “needed” correction after a period of huge growth.

“The expected slowing in home prices is not enough in itself to generate a serious economic downturn in Australia,” she said.

“Lower wealth growth will limit household spending but this is also helpful to get inflation to be a bit lower. It could make the RBA’s job a little easier.

“Given the 50+% growth in home prices that have occurred in Australia in less than 5 years, a short-term adjustment with lower home prices is needed to rebalance affordability.”