Auction clearance rates rocket as home buyers ignore the numbers and rush back in

Immigration cutbacks and high interest rates have been put to one side by property hunters at the start of the year.

Auction clearance rates – the key measure of buyer interest in the housing market – just rocketed to their highest level since 2022.

Across the capital cities, the clearance number hit 76 per cent over the last week and a boom-time level of over 80 per cent in Sydney.

As property analyst Louis Christopher of research agency SQM suggests: “This is stronger than anyone expected, and if it keeps up in this manner then any negative forecasts for the year ahead would have to be rewritten.”

Underpinning negative forecasts for the coming year are dramatic cuts in immigration numbers. Home sales and rental demand are expected to be hit with the total migrant intake set to drop from 375,000 in the 12 months to June 2024 to 250,000 in the following 12 months.

Surging migration was one of the outstanding factors that pumped up the 2023 market and sent property prices – and rentals – much higher than the market had expected.

What’s more, widespread optimism that rates are set to fall are about to be tempered with sobering news from the money markets.

In her first press conference as RBA governor, Michele Bullock made it very clear that interest rate cuts were not on the table just now at the central bank.

Bullock left many property investors asking questions when she said interest rate cuts would be something the bank “might be able to think about” if inflation hit 2.5 per cent – a long way from the current level of 4.1 per cent.

Meanwhile, the money markets are being actively ignored by the property buyers – global bond yields led by the US are actually rising as better than expected economic data filters through to Wall Street. The benchmark 10-year US bond, after dropping from above 5 per cent to below 4 per cent in recent months, has now moved back up to near 4.17 per cent.

“Buyers are assuming there will be rate cuts in the middle of the year, but they may not happen,” says Christopher from SQM, which had pencilled in potential price falls of up to 4 per cent in Sydney and 3 per cent in Melbourne this calendar year.

As CoreLogic’s latest report suggests: “The newfound strength in auction markets is a radical turnaround from the December results last year, where the preliminary capital city clearance rate fell to the mid 60% range while final clearance rates dropped to the mid 50% level.”

Christopher also points out that distressed sales – a factor that can dilute prices – have started to rise again. The uptick is most severe in New South Wales, where they lifted by 9 per cent in January. The figures were 16 per cent higher than a year ago.

“The distressed sales figures caught our eye last month, it’s a little early to draw too much from it, but we will be watching that number very closely from here,” Christopher says.

Can this market really grind higher and achieve the 3-5 per cent lift that is the consensus forecast?

To do so would mean the average loan size going beyond anything we have seen in the past. The average home loan size across Australia was $624,383 in December, reflecting the 10 per cent lift in prices over 2023 – it was also a big jump from $608,448 in November.

At this level we have already reached the highest average loan size ever recorded in the ABS data set.

Originally published as Auction clearance rates rocket as home buyers ignore the numbers and rush back in