What You Need to Know About Auction Clearance Rates

Sydney’s high auction clearance rates keep making headlines at the moment.

We look at five things you need to know about them.

1. They’ve never been higher than right now

According to Domain, on the weekend of 20 March 2021, Sydney’s auction clearance rate reached 90% - the first time it has reached this milestone in almost a quarter of a century of records. This capped a run of impressively high results. In fact, the auction clearance rate hasn’t fallen below 80% since December last year. What’s more remarkable is that just a year ago, as the pandemic hit, the city’s auction clearance rate stood at just 38%.

Generally, when auction clearance rates go over 70% is considered a sign of a seller’s market; when they lift above 80% it’s considered a red hot one. Because we’ve not experienced 90% before, words really can’t describe just how competitive Sydney’s property market is right now.

To give you some idea though, consider that in early March 2021, our listing at 33 Gerard Street Alexandria - a three-bedroom terrace in need of renovation - sold for $2.25 million, or $450,000 over its reserve price. That was 25% higher than the vendor was hoping for.

2. They’re driven by the laws of supply and demand

The auction clearance rate measures the percentage of properties listed for auction that actually sell under the hammer or before auction day. This means it’s simply a gauge of demand versus supply.

Right now, the auction clearance rate reveals that there are a lot of buyers in the market and not enough properties to satisfy them. So, when a property gets listed for auction across Sydney there’s currently a nine-out-of-10 chance it will sell when the hammer falls.

This is happening for two reasons. On the demand side, there are a lot of people looking to buy. Interest rates are low and our experiences through COVID-19 mean more people have been spending more time at home. Many have decided they’d like to do that in more comfortable surroundings.

On the supply side, however, there isn’t a lot of stock available. Despite the high level of interest from buyers, there were around 10,000 fewer listings on the property market in February 2021 than there were in February 2019, according to SQM Research.

3. They can point to confidence (and credit)

Because they’re based on supply and demand, auction clearance rates can be something of a barometer for confidence both in the property market and in the economy more broadly. If someone thinks property prices will go down - or they’re worried they’ll lose their job and won’t be able to keep making mortgage repayments - they’re not usually going to bid enough at auction to satisfy a vendor to actually sell.

Auction clearance rates can also be a measure of the state of the credit market and how willing lenders are to approve borrowers. At the moment, the banks are much more willing to lend than they were a year ago during the height of the pandemic. That means potential buyers have access to the finance they need to compete against others.

4. They can drive prices up (or down)

With confidence and access to credit, people are willing to put their best foot forward. So high auction clearance rates are almost always accompanied by rising prices. In fact, today’s high auction clearance rates have helped drive up the median house price in Alexandria by 30.6% in the space of just one year, according to Domain figures. At the same time, a low auction clearance rate will act as a drag on prices. That’s because when a property is left on the market, vendors sometimes reduce the price to sell it. When this happens it can quickly send ripples through the market - with buyers beginning to hold off bidding on other properties, worried that they’ll be paying too much.

In other words, auction clearance rates can help shift momentum one way or another, as well as acting as a guide for where things are at.

5. They don’t always tell the full story

While most properties in our area go to auction, not all do. Many properties, especially high end or unique ones, still get sold by private treaty. Increasingly, we’re also selling a lot of good homes off-market, meaning they never actually get advertised to the wider public.

Also, even during the bottom of the market last year, most homes still sold - albeit not always on auction day itself. That meant many sales that actually happened didn’t register in the auction clearance rates but were recorded as ‘passed in’.

So, while the auction clearance rate may be a good general guide to the property market, it rarely gives the full view.