Most Australian capital city housing markets have recorded increased buyer activity and house price rises over the past year.
Buyer activity in the Melbourne and Sydney housing markets has been particularly prominent in 2013 with house prices on track to increase by 12 percent in Sydney and 7 percent in Melbourne – the best annual results since 2010.
Measuring housing market performance can be problematic due to the volume of sales data required for a robust and reliable estimate of underlying price movements.
Monthly price models tend to produce volatile and inconsistent results from relatively small sale numbers. Quarterly house price models are sourced from a larger sale sample size and are more reliable and robust, but have the disadvantage of reflecting market conditions three months previous to the current market environment.
A reliable and robust measure of the current nature of housing market activity for both Sydney and Melbourne is the weekend home auction clearance rate.
Home auctions are conducted in Melbourne and Sydney on most Saturdays in numbers significant enough to support measures that reflect overall housing market activity for each city.
Auction clearance rates are calculated each Saturday evening from a survey of the day’s home auction results collected from real estate agents. The auction clearance rate indicates the number of auction sales as a percentage of the surveyed results.
If a Saturday survey of 1000 auction results reports 750 auction sales then the auction clearance rate is 75 percent – that is 75 percent of auction results surveyed on the Saturday were reported as sold.
A detailed explanation of APM auction clearance rate methodology is available here http://images.apm.com.au/images/Public/APM/CMS/Auction%20Clearance%20Rate.pdf
Auction clearance rates calculated from the Saturday survey have consistently provided an accurate and timely indication of the current state of both the Sydney and Melbourne housing markets.
The APM auction clearance rate calculated from the Saturday survey averaged 80.3 percent over the September quarter 2013 compared to 59.7 percent averaged over the September quarter in 2012.
The rise in the Saturday survey auction clearance rate over this period corresponded with a rise in the Sydney median house price of 10.5 percent over the same period.
The direct relationship between auction clearance rates and house price movements is also evident for the Melbourne housing market. The APM auction clearance rate calculated from the Melbourne Saturday survey averaged 70.5 percent over the September quarter 2013 compared to 55.9 percent averaged over the September quarter in 2012.
The rise in the Saturday survey auction clearance rate over this period also corresponded with a rise in the Melbourne median house price of 6.9 percent over the same period.
As a general rule of thumb auction clearance rates below 60 percent calculated from the Saturday survey indicate flat to declining prices in the overall Sydney and Melbourne housing markets. Rates between 60 and 70 percent indicate flat to modest prices growth, rates between 70 and 80 percent indicate moderate prices growth and rates above 80 percent indicate strong prices growth.
Auction clearance rates continue to provide timely and accurate insights into the general level of home buyer activity in both the Sydney and Melbourne housing markets.
Dr Andrew Wilson is Senior Economist for Australian Property Monitors Follow @DocAndrewWilson
The Property Hour expert 2UE Saturdays 2-3pm