Unlike fungible assets like shares, property is not measured by an index in Australia, although the US does have the Case/Shiller Index. As a result, most look to the auction clearance rate as a de facto indicator of the strength of the residential property market. A higher clearance rate indicates strong demand and is indicative of a rising market; by contrast, a lower clearance rate is a leading indicator of falling prices.
Clearance rates are important to real estate agents. Like stock brokers, real estate agents profit from turnover and it is in their interests to create the impression of a still buoyant market. The reported clearance rate figure is particularly relevant in Melbourne, which generally sees predominantly Saturday on-site auctions. The Sunday Age reports the clearance rates (provided by the Real Estate Institute of Victoria) in its Domain section on Sunday. This week, the “Market Wrap” section claimed that:
Maybe it’s the slash in the interest rate or new demand from the increased first home-buyers grant. Maybe there’s some real bargains to be had, or vendors just really need to make a sale before the end of the year. Maybe it’s just a fluke.
Whatever the reason, the clearance rate rose to 55 percent, up 4 percentage points after hitting a new low for the year last Saturday.
The data provided to The Sunday Age are supplied by the Real Estate Institute of Victoria (which is, in effect, the Real Estate Agents union). However, a Crikey study reveals that the figures claimed by the REIV and reported by The Sunday Age are misleading. Crikey has calculated that the actual auction clearance rate last weekend (based on a sample size of 332 auctions) was approximately 43% — well below the 55% figure claimed by the REIV.
Last weekend, Crikey attended three separate auctions in Melbourne’s South Melbourne (which could loosely be compared to Sydney’s Paddington or Woollahra). In each of the auctions, not one single bid was submitted. However, in reviewing the auction results the following day, only one of the three ‘passed-in’ properties appeared to be counted in the determination of the clearance rate. That means either agents aren’t reporting passed-in properties, or the REIV is ignoring data relating to passed-in properties to boost the reported clearance rate.
In addition to such abnormalities, the reported auction clearance rate also appears to include properties subject to ‘private sale’ (in the listed key, a code is devoted to ‘private sale’). A ‘private sale’ is a negotiated purchase, as opposed to a competitive auction. If the REIV includes private sales in its calculations, this will artificially inflate the reported clearance rates. That is because private sale properties are usually advertised for a number of months and are not considered in calculating the clearance rate during that time.
On Saturday, The Age listed 332 auctions that were taking place that day. Crikey reviewed the actual results reported (assuming that if no result was reported, the property was passed in), comparing the foreshadowed auctions with the listed results. The actual calculation appears far less rosy than the scenario painted by the REIV. Of the 332 Melbourne properties listed for auction on Saturday 6 December, 144 were sold — a clearance rate of less than 44%. A stark contrast to the reported clearance rate of 55% and well below the clearance rates achieved in 2007, which often exceeded 80%.
As unemployment continues to rise, residential property, especially property priced above $500,000, is expected to fall significantly. The reduced clearance rates indicate that vendors have so far been unwilling to adjust their price expectations in light of reduced demand. However, vendors may not have such luxuries for long. As unemployment rises, some vendors, already suffering mortgage stress (including those in exclusive suburbs like Vaucluse), will be unable to service mortgages payments and be forced to ‘meet the market’. If and when that occurs, expect to see more fire-sales and a sharp decrease in residential property prices.
Try this on for size! There were very misleading data published in the Courier Mail at the weekend – I assume the error was by the REIQ – which no doubt has deceived many people.
They published the house price data to the September quarter for Queensland. However, unlike for all other regions, the Brisbane “change over year” compares Median 12 months June 08 with June 07 – not Median 12 months September 08 with September 07. This leaves the impression that house prices have risen more over the year than they actually have – in fact, the September QTR median price for many suburbs is only very slightly above the Median 12 months June 07 figure, and for a few suburbs it is below.
For example: Belmont – median Sep QTR 08 $439,000 – Median 12 months Jun 07 $507,000, Change over 1 yr 8.9% (note the September QTR 08 figure is actually 14% below the Median 12 months Jun 07 figure)
Either the headings for the “Brisbane” columns are incorrect, or the columns are correct in which case the table consists of two columns of September data and 3 of June data.
I suspect it is the latter because the data do not make sense otherwise. (Since the September QTR 07 was still in the midst of the second wave of Brisbane’s bubble, and according to this release prices declined 4.3% in September QTR 08, the annual figures could be expected to be significantly lower than the annual June figures – probably negative for some suburbs.)
Obviously, the fact that this is the first set of figures that really show that the Brisbane market is falling rapidly suggests that the REIQ would be extremely sensitive about releasing these data. So it’s hard to understand how this error was not detected – either by the REIQ or The Courier Mail (and Brisbane Times also quotes the erroneous data) – prior to release and publication.
More reason to conduct a review into the functioning of the realestate industry!
Adam
Perhaps you should read this old crikey story from two yaars ago.
http://uat.crikey.com.au/Media-Arts-and-Sports/20060911-Has-real-estates-vicelike-grip-on-Fairfax-cost-a-commentator-his-job-.html
The powers at be at The Age are aware of the dogey results..and yet do nothing..there is more to this story than meets the eye. Please contact me if you wish to discuss further.
if it wasnt for da likes of you Adam and da crckey boys i would still be stuck readin fings like da Age …erghhummm..cofffff mhuckkz..spit…. you guys always confirm what us unwashed mugs always suspect. da reel emin estate lobby is a farrago of da lies and half-truths, and until da politicians find da balls to outlaw theirr disgracefful antics of deceitful self interest and market manipulation it gonna get worser coz they now desperater
Adam: I fed the SMH a story which appeared on Page 7 of the SMH 25 September 2008 on the wholesale distortion of rental vacancy rates across metropolitan Sydney, by the Real Estate Institute of NSW.
Desperate for full time work, I took a job (at substantially below my usual salary range) with REINSW as Public Affairs Manager, in mid – 2005 & left 6 months later in disgust at the Institute’s lack of integrity right across its operations.
Probably the best example of the Institute’s lack of management substance, was when soon after my appointment, I shocked an Institute senior management meeting with the ‘ news ‘ that NSW Ministers maintained personal advisors et al, who were the starting point for informally testing the likelihood of preferred policy change.
In 2 months I was able to progess REINSW policy goals further than the CEO & his team had done by badgering departmental staff in the previous 3 years….as would any lobbyist worth their salt.
Even a severly depleted personal cash flow couldn’t convince me to continue working there….one has to be able to sleep at night.
I have been wondering how long the media (I don’t include the REIV & REINSW-dependent Fairfax group in that category) would pick up on what has been obvious to many of us for YEARS. I routinely attend auctions in my area, most of which fail, yet do not appear as such in the ‘clearance rate’ summary presented by the REIV/Domain.
You really have to question why the regulators and authorities haven’t taken decisive action once and for all to clean up these overt scams. The real estate ‘industry’ would be a joke if their behaviour was not so seriously unethical or even illegal.