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Thursday, 15th October 2015

Where is the Sydney auction market right now?

It’s the question on everyone’s lips – has the Sydney real estate market peaked? Are prices really falling, or is this just a slow down in an ever-rising market?   After months of unprecedented 80%+ clearance rates and constant record-breaking prices, the media is now feeding us a barrage of mixed reports ranging from “record buyer demand” to “weakening market”. In the last few weeks clearance rates have dropped to as low as 71% (73% last Saturday).

That’s a big fall, but what does it really indicate? Will we be picking up bargains in the next few months?  

If you take a hard look suburb-by-suburb at last week’s results you should notice a pattern. Core Inner-Sydney suburbs of the Eastern Suburbs, Inner West and Lower North Shore had just as strong clearance rates as ever. Where the auction system appears to have fallen over is in outer suburbs – Auburn, Bonnyrigg, Cabramatta, Canley Heights, Granville, Greenacre, Mount Pritchard…which brings the overall results for Sydney down.  

There are two simple reasons for this.  

In a rapidly rising market buyers are constantly stretching themselves. They will borrow as much as they can from banks and relatives to get onto the next rung on the real estate ladder. Essentially they are working on the assumption that their immediate pain will be far out-weighed by the greater pain of missing out in a rising market. Buyers have confidence to make this stretch in core areas that enjoy established amenity and easy CBD transport, as they traditionally perform well in any market. As you move further away from the CBD those value fundamentals can fall away, and the risk of overpaying in a hot market unfortunately increases. To use the age-old analogy: if the market sneezes, the outer suburbs catch a cold.  

The other reason is even simpler. Until recently, many of these outer suburbs had rarely seen an auction. Many of the streets and homes are relatively uniform and a little more straightforward to price – the sort of properties that traditionally suit a private treaty method of sale. Successful auctions to some extent rely on unspoken fear and rivalry, and a seasoned agent will feed this to a point where emotional competition takes over on the day. So running a successful auction campaign involves experience and skills that many agents in these outer areas might not have yet fully mastered. Without these agent skills and buyers/vendors familiar with the process, auctions can fall flat the moment uncertainty creeps in.  

So what do these stagnating auction results really indicate?  

For those looking to buy in core inner suburbs, the market you are competing in has not really slowed, and barring any dramatic economic changes, most likely will continue to thrive. We also know that we are experiencing lower stock levels than last year in key suburbs – this Spring selling season has been underwhelming in terms of quality stock. Yet demand in these areas is still strong from investors (local and overseas), first home buyers, empty nesters and upgraders - the fundamentals of low supply and high demand are still there.  

So what should buyers do now?  

If you’re in the market and looking for a home or investment property, stay tuned to the facts of that local market. Within suburbs of core Inner Sydney, prices are still increasing on a monthly basis, so the sooner you purchase the better. As always it’s important you complete your research before buying or employ a buyers agent who can assist you in this area, as it’s the facts and fundamentals, which will prevent a buyer from being caught up in any auction campaign.