Melbourne’s auction clearance rate has reached its highest level in a year and a half as home buyers feel more upbeat due to the recent interest rate cut.
In February, 65.3 per cent of Melbourne homes taken to auction sold under the hammer or sold prior, Domain figures showed.
The last time Melbourne’s monthly clearance rate was higher was in July 2023 when 67 per cent of homes taken to auction sold.
Last year the market was weakening because ongoing high interest rates limited how much money potential buyers could borrow and discouraged them from bidding. But buyers have been returning to auctions this year, either to purchase before rate cuts drive up prices again, or after February’s rate cut armed with bigger budgets.
Some of Melbourne’s most expensive areas recorded the strongest auction success, in line with other indicators showing the upper end of the market leading the rebound.
In the inner east, 71.9 per cent of homes sold last month, a bounce of 5.3 percentage points from February 2024.
The second-highest result was in the inner south at 68.5 per cent, marginally higher than a year ago, while the south-east reached 68.4 per cent, a 7.2 percentage point jump from last year.
Inner Melbourne – which includes both higher-priced houses and investor-grade units that have been challenged by a rise in land tax – recorded a clearance rate of 65.2 per cent, only a whisker below Melbourne overall and higher than last February.
A clearance rate of 60 per cent is considered a balanced market, and a higher result indicates property prices are likely to be rising. A result of 70 per cent is broadly correlated with 10 per cent annual price growth.
Domain chief of research and economics Dr Nicola Powell said clearance rates tend to bounce early in the year, but she thought the February result was something more.
“This is quite the outcome for Melbourne relative to what we’d pretty much seen through the whole of 2024 and pushing into the back of 2023,” she said.
“It’s the highest we’ve seen in Melbourne since July 2023 so that’s a marked difference.”
In terms of the areas recording the strongest results, she said the upper end of the market tends to lead price cycles.
“It’s those premium locations, those auction heartlands, it’s all of those inner areas that have got the strongest clearance rate, and most areas have lifted year-on-year now,” she said.
Powell said buyers are now perceiving greater value in Melbourne.
“It will drive people to make a purchase before they think prices are going to recover,” she said.
She warned there will likely be a high volume of homes for sale in March as public holidays limit the number of April weekends available, which could affect next month’s auction figures. She also thought buyers would be looking for good value.
The volume of buyer inquiry on homes for sale in February was the highest for the month of February since 2022, and 13 per cent higher than a year earlier, showed separate figures from Domain that measure users of domain.com.au sending a message through the site to the agent on a listing.
Auctioneers report buyer interest picking up to an extent but warn buyers are still picky.
Auctioneer Nick Johnstone, of Nick Johnstone Real Estate, said it was a slow start for auctions in February but buyer enthusiasm and auction activity improved since the interest rate cut mid-month.
“The last two weeks, there has definitely been a lot more enthusiasm and people are really wanting to make offers quickly, to secure properties when it’s a good property in a good location,” he said.
“Anything that’s a C or D grade property is struggling, but anything A or B grade is really going well.”
Johnstone has noticed higher numbers at open for inspections, and more family buyers returning.
“Lots of families are coming back out in the market, and people upgrading, so going from a $2 million house to a $4 million house,” he said.
Ray White Cheltenham auctioneer Greg Brydon said buyers have gained more confidence than late last year.
“It’s really a two-pace market still in that auctions are either flying and having a lot of competition or they seem to not be having any competition whatsoever. You’ll see auctions that have got three, four or five bidders, or they might have one bidder and [we] negotiate with that one bidder,” he said.
“There’s a bit more certainty … there’s definitely people making quicker decisions.”
Brydon said auction activity started to pick up in the second half of February – post-rate cut – with family homes and renovated properties selling well.
“Anything that is somewhat needing work like development stock, knockdown and rebuild stock is still struggling a little bit.”