A clearance rate is a key property market indicator. It is generally used to establish if the market favours buyers or sellers. Clearance rates reflect the proportion of homes sold at auction (whether that is under the hammer, prior or just after) of the total number of reported auctions.
Clearance rates can be viewed as a barometer for buyer sentiment – if most houses offered at auction actually sell at auction the clearance rate will be high - anything over 70% indicates a sellers market (high buyer demand therefore higher prices for sellers) and conversely a low clearance rate indicates a buyers market (low buyer demand therefore lower prices for sellers).
Sydney experienced an average clearance rate of 72% throughout 2016 – indicative of a sellers market. Five years ago, the clearance rate in Sydney was 53% - a buyers market.
If you are in a sellers market, there are many active buyers and a relatively smaller number of homes for sale, and competitive buyers are likely to drive up prices. In a buyers market, it is likely that homes are being priced above market expectation and/or there is an oversupply in the market, resulting in an increased number of unsuccessful auction campaigns. In a buyers market there is the opportunity to negotiate price much more so than in a sellers market.
Some people might believe that in a market where the clearance rate is high, the majority of homes are sold at auction. Not so – remember that clearance rates reflect the proportion of homes sold at auction (whether that is under the hammer, prior or just after) of the total number of reported auctions.
It is a fact that most homes are sold by private treaty – in Sydney just over 70% of homes sold in 2016 were sold by private treaty.
Many external factors can influence how many auctions are held as well as the clearance rate for a specific week. These can include sporting events, religious holidays and weather. Traditionally AFL Grand Final weekend has the lowest number of scheduled auctions – for obvious reasons.
While the auction clearance rate gauges property market sentiment, it is only one of many indicators. It should be used in conjunction with your own market research. If you’re looking to buy or sell, it is always worthwhile attending local auctions and assessing comparable properties. If in doubt – consult your local real estate agent for advice on the state of the market.