In defence of Auction Clearance Rates

Sydney auction clearance rate and price growth relationship

Auction clearance rates (ACRs) are one of the more widely reported property statistics.  In the 2009 financial year, auctions accounted for 11% of all house sales in Sydney and 17% of all house sales in Melbourne.  For units, the proportion is lower, with auctions accounting for 6% of all unit sales in Sydney and 14% of all sales in Melbourne.  Canberra is the only other capital city where auctions accounted for more than 5% of all property sales.

If sales by auction only represent around between 10%-20% of all property transactions, why are we so interested in not only the auction clearance rates, but also volumes and value of those properties sold at auction. The short answer is that the majority of auction sales results are available on the same day the auction is held, in a much shorter timeframe than private treaty sales take to report, and provide a current view of how the market is performing.

On a typical Saturday in Sydney, real estate agents will report over 70% of all auction results to APM.  This proportion is lower for Melbourne, but rising.  Auctions are held nearly exclusively on Saturdays, meaning that  the results collection process can be undertaken largely on a single day without taking too much time out of agents’ schedules. Private treaty sales results, although collected for the Saturday, are also spread out throughout the week.  Consequently, private treaty sales are collected with a much longer time delay from both agents and the Valuer Generals Office. 

So by Saturday evening, preliminary auction clearance rates available for publication in Sunday’s paper. Of course, this is of no use to anyone if they’re inaccurate or if they don’t tell us something important about how the property market as a whole is behaving  (i.e. including private treaty sales).

APM’s analysis of our historically reported Sydney auction clearance rate shows that between the time auction sales are reported on Saturday evening, and after the full sample is collected by midweek, the ACR changes by less than 2% on average. So, the preliminary numbers are robust and accurate.

But what do they tell us? The chart above tells us that historically, auction clearance rates (which we know nearly immediately) have had an extraordinarily strong relationship with current house price changes (which we won't know for at least a month).  During the periods when Sydney experienced quarterly house price growth close to or above the 4.0% mark (mid-1997, late-1999, 2001 to late-2003, and the last 6 months), auction clearance rates were typically in the high 60%s and low 70%s.  Between 2004 and early-2007, when Sydney house prices were flat or falling, clearance rates were between 40% and 50%.   Not only that, any drop in auction clearance rates nearly always coincided with a drop in the rate of house price growth. The relationship is very similar for Melbourne.

So even given all the difficulties in collecting timely and accurate auction data, the reported weekly auction clearance rates are an accurate and reliable property indicator that provide a very timely snapshot of how property prices are performing  right now.