A cool change has swept across pockets of the property market, with falling median house prices and weaker clearance rates.
It doesn’t necessarily mean prices are dropping, but many homes certainly aren’t achieving the same runaway results as their next door neighbour who sold earlier in the year.
With vendors’ expectations exceeding what the market is willing to pay, there will naturally be more pass-ins.
Here are five tell-tale signs the market is cooling:
1. Agents are more encouraging about pre-auction offers
It is unlikely an agent/vendor would accept a pre-auction offer in a hot market because strong competition means sought-after properties will almost definitely sell significantly over reserve.
When the market starts shifting more in the buyer’s favour, an increasing number of agents will be inviting pre-auction offers with vendors becoming more receptive to selling before.
If there are only one or two interested buyers, agents and their vendors might not want to risk taking the property to auction.
2. Record number of auctions on December 19
There are well over 600 auctions in metropolitan Melbourne penciled in six days before Christmas – a large jump from the previous weekend-before-Christmas record of 470 set last year. In Sydney, it’s about 200 auctions for the same day.
Agents say some vendors fear next year will not start as strongly as how it finished in 2015, and are hoping to seal the deal this calendar year.
Of course, there are also a large number of people who have bought earlier this year and are now looking to sell.
That being said, there are fewer auctions in Sydney on the 19th because clearance rates have recently taken a big hit, with buyers taking a wait-and-see approach.
3. More properties selling privately as opposed to auction
About one-third of all properties are selling via auction this year compared with a lower proportion when the market was weaker.
When there are three or four serious buyers on a property, vendors can often get a better price by playing on the competition.
But if there is only one serious buyer, selling privately would be a preferred option.
Falling confidence might also lead to more auctions being withdrawn.
4. More properties passing in and sitting on the market, rather than selling a few days later
Properties that pass in at auctions usually sell a few days later in a hot market.
In a cooler market, passed-in homes will be hanging around for longer and struggle to find a buyer.
5. Clearance rates will consistently drop over several weeks/months
It is true that a record volume of listings is putting pressure on Melbourne’s clearance rate and there is a smaller pool of buyers at the pointy end of the year.
It’s a similar story in Sydney, where a record flood of late-spring auctions has seen the clearance rate dip below 60 per cent for two consecutive weekends.
But some vendors’ expectations are also exceeding what the market is willing to pay because prices are no longer increasing at the strong rate seen in autumn.
This means there are fewer contracts inked on Saturday.
Last weekend’s 66.2 per cent clearance rate brings the Melbourne’s spring auction score to 70.1 per cent – the lowest result since 2012.
Sydney’s clearance rate dropped to 58.6 per cent last weekend, to a spring average of 61.8 per cent – the lowest since spring 2012.
Source: Domain Group senior economist Andrew Wilson, Nelson Alexander sales director Arch Staver and Gary Peer of Gary Peer Real Estate.