March 2, 2020 by Dymphna

Investors! Are you watching this?

More homes are coming onto the market, but not fast enough apparently.

Ok, here’s something that serious investors are watching. Are you?

So we all know about the booming Auction Clearance Rate data. The percentage of auctions that end up in a successful sale is currently around the mid-70 percents.

That’s a boom-time level, and is about as good as it gets.

But look at what else is going on. This table has more info on the auction data. Check out the ‘total auctions’ columns.

Compared with a year ago, the total number of auctions is up about 7%.

That’s a significant increase.

That’s interesting for two reasons.

First is that prices tend to go up in periods of higher volumes. When the market is trading and fluid, you get quicker run ups in prices.

Partly that’s just the nature of the property price data. The data is based on recent sales. If there were no sales, then price growth would be zero. By definition.

But it is also the case that higher prices make people more willing to put their houses on the market. This increases volumes, which in turn helps prices go higher, which encourages more people to sell… and we get a virtuous circle.

So it’s interesting on that level. It’s point to a sharp period of price growth ahead.

But the other reason it’s interesting is that even though the number of properties on the market is increasing, buyers are still unhappy. They’re just aren’t enough properties.

From the AFR:

Surging auction volumes failed to dent the appetites of first home buyers and the slowly returning cohort of investors to the Sydney and Melbourne auction markets, with four in every five homes selling at auction last week.

… In auction-capital Melbourne, which by itself accounted for half of all scheduled auctions, a two-bedroom, south-facing apartment in the inner bayside suburb of St Kilda that was advertised at between $600,000 and $640,000 sold in a contest between four bidders for $730,000.

“There was a good mix of buyers known to us from missing out on properties last year as well as a mix of new buyers,” Marshall White agent Bradley Steinbach told The Australian Financial Review.

“A lot of people are getting home loans at the moment.”

In Sydney, where the number of homes auctioned also jumped by half from last week, the competition was equally fierce.

A three-bedroom house on 158sq m at 21 Edward Street, North Sydney, sold for $325,000 over its reserve price of $2.1 million on Saturday.

“This result shows the incredible strength of the market at the moment, largely due to a severe stock shortage,” Belle Property Neutral Bay Principal, Mark Jackson said.

“Buyers are competing fiercely for good character homes in great locations.”

REA Group Chief Economist reckons he’s seen a spike in property searches on the platform – a spike that has outpaced the number of properties coming on to the market.

So we’ve actually got two effects here.

The first is a rise in volumes. The second is a surge in buyer interest, spurred on by the easier credit environment.

Alone, either of those factors would push prices higher. But put them together, and you’ve got a recipe for a very rapid price increase indeed.

That’s something that serious investors are watching closely.

And what do you think they’re doing about it?