Chris Vedelago | Domain | November 13, 2011
Spooked by low clearance rates and the higher costs of staging an auction, hundreds – potentially even thousands – of home owners are now choosing to sell by private treaty or take their properties off the market rather than risk putting them under the hammer.
Figures from the Real Estate Institute of Victoria show the number of properties up for auction has fallen to a three-year low this spring, which is traditionally the strongest period of the year.
About 5000 homes were put on the block in September and October, down 13 per cent on the same time last year and 27 per cent below the 2007 market peak. Only during the 2008 global financial crisis has the stock level been lower in the last five years.
The number of auctions being cancelled or postponed – often minutes before the scheduled start time – has also more than doubled to nearly 280 for the year to date, REIV figures show.
Meanwhile, the volume of overall sale listings has surged. More than 51,260 properties were on the market in October, which is up 42 per cent compared to 2010.
Data from Fairfax-owned analyst group Australian Property Monitors also confirms that auctions hold a declining share of market activity, although the trend is less pronounced.
”It’s normal in a downturn to see more and more people go towards private treaty sales,” said Louis Christopher, managing director of analysis firm SQM Research. ”We’ve seen a massive spike in the total number of properties listed for sale, but the proportion of auctions to total listings has fallen away.”
Two years ago, during the boom, Michelle and Jason Scott would have put their family home under the hammer, but in this market they didn’t like the chances for their North Balwyn house.
”After going to lots of auctions and watching lots of properties have absolutely no one bid on them, we decided against going through that,” Ms Scott said. ”We thought that maybe a private sale would be better at this time with the market being down.”
After consistently posting clearance rates above 80 per cent in the year to April 2010, the auction sales rate has steadily fallen to around 55 per cent in recent months. A fortnight ago it slipped to 50 per cent, the weakest performance in more than seven years.
”There is a clear link between a strongly performing market and people choosing auctions as a sale method,” said REIV spokesman Robert Larocca. ”When the market is stronger more people send their properties to auction than they do when the market is soft as it is now.”
But with about half of properties passing in, many home owners who still chose to go to auction end up having to run a private sale campaign anyway.
Hocking Stuart chief executive Nigel O’Neil argues that the reported clearance rates are ”misleading” and that auctions remain the best way to connect buyers and sellers.
”In the traditional inner suburban market, auctions will be auctions for forever and a day. The middle suburban markets is where it swings towards auctions or private sales depending on clearance rates,” Mr O’Neil said.
And auctions are still delivering strong results in parts of the city, with clearance rates for suburbs such as Brunswick East, Clifton Hill, Armadale, Balaclava and Coburg North above 70 per cent.