Auction clearance rate hits 78% - what the?

If we believe everything we read about the consequences of 10 consecutive rate rises and the increasing strain on family budgets and living expenses, you could be somewhat bemused reading the headline that Melbourne auction rates hit 78% on the weekend. You could be forgiven for asking yourself the question 'how could the auction rate be so high when we are in the state we are in?'

This could be for a number of reasons. First up, compared to this time last year, there were 742 auctions reported by the REIV on the weekend. A year ago this was sitting at 1329. This means that there could be more competition for fewer properties being listed. More competition for fewer homes means properties are selling for auction. The question is whether this competition is translating into healthy profits for sellers.

Secondly, there are some buyers who feel that based on commentary following the latest increase in the cash rate by the Reserve Bank, that we are coming to the end of the rate hikes sooner rather than later. For these buyers, the perception of the much feared 'mortgage cliff' might be offset by the prospect of a Reserve Bank 'pause' in the cash rate currently being debated widely in many circles (with some pundits even suggesting as early as April or May). Whatever their reason, driven by a desire to potentially cash in on a lower sales price compared to 12 -18 months ago, these buyers are deciding to buy now.

Lastly there are those lucky home buyers that may not have felt the effects of the current market conditions on their wages or borrowing power. These buyers may be taking up the opportunity while they can to secure desired properties, with the belief that sellers will be more open to lower price points than they may have been a year ago.

Undoubtedly just under half the number of auctions last weekend than this time last year, there are still sellers who are waiting on the side lines to see what happens over the next few months to six months. The question will be whether these buyers will feel more comfortable listing their properties mid to late this year if we do see the likely pause in cash rate increases by the Reserve Bank.

These are very interesting times. One thing we know for sure is that auction rates are up and the properties that are on the market are selling more so than they were over the past few months, driven by increased competition from buyers willing to take the plunge in the current market.

For all involved in the property market be it buyers or sellers, let's keep our fingers crossed that market sentiment continues to improve between now and the end of the year. Watch this space.