1 day ago
6
Property prices are likely to keep falling as auction clearance rates dropped in March in Sydney and Melbourne, as prospective property buyers worry about interest rate rises, the rising cost of living and an uncertain economy.
The quieter auction market correlates with a decline in home values, which economists say is likely to continue as mortgage costs increase.
Sydney’s auction clearance rate fell to 57.3 per cent in March, according to Domain figures, down from 66.4 per cent in February and below the 60 per cent benchmark that indicates a balanced market between buyers and sellers. Excluding December results, which are seasonally weak due to the Christmas break, the last time Sydney’s auction market was lower was in winter 2022, when interest rates were rising.
Melbourne’s auction clearance rate fell to 60.7 per cent in March, down from 67 per cent in February and lower than the 68 per cent it achieved in March last year. Melbourne’s auction market was briefly weaker in November and December 2024, but the March figure is also the lowest result since winter 2022.
Home buyers’ budgets have been trimmed by the Reserve Bank’s decision to lift the cash rate twice this year, at its February and March meetings, and many economists predict there could be more hiking to come.
Buyers have also been squeezed by rising living costs including a jump in petrol prices, and they are cautious amid the economic uncertainty sparked by the conflict in the Middle East.
Last week’s preliminary auction clearance rates were even lower, at 55 per cent for Sydney and 56 per cent for Melbourne. Preliminary results are usually revised lower as more auction results are collected later.
Domain chief of research and economics Dr Nicola Powell said the fall in the clearance rate reflected a reduction in buyer activity.
“When you think about how this year has unravelled for the housing market, there was no expectation we would see back-to-back rate hikes from the RBA, and that is exactly what happened,” she said, adding that the higher January figures were seasonally elevated.
She said there was a fall in consumer sentiment as living costs rose and the war on Iran continued.
“As that conflict extends longer, that is really rattling buyers,” she said. “Whenever you see a rattling of confidence, what you see is a reduction in demand. People pause, they take more time in their buying and selling decisions.”
Powell thought weaker auction market conditions were likely to continue, given market expectations that the cash rate would peak later this year or early next year.
She said a pullback in price was likely but that different segments of the market would perform differently. Cheaper homes are in higher demand as buyer budgets are constrained. Demand for cheaper homes has been boosted by government incentives for first home buyers, such as the expanded 5 per cent deposit scheme.
“You tend to find the upper end becomes much softer, and the affordable segment is probably going to outperform,” she said.
Separate figures from Cotality showed Melbourne home values are 0.6 per cent lower over the March quarter, and Sydney’s were down 0.2 per cent.
Westpac senior economist Matthew Hassan thought the auction market pointed to a weakening in prices amid rate hikes and global economic uncertainty.
“The situation has become a lot more uncertain for buyers and I think we are seeing a pretty clear cooling in activity for buyers,” he said.
“We have moved into some form of price adjustment. It still looks reasonably mild at the moment. I think it is consistent with a cooling in the Sydney and Melbourne markets.”
He thought the weaker property market conditions were likely to continue due to a pick-up in inflation that Westpac forecasts will prompt the RBA to lift the cash rate to 4.85 per cent.
“Three rate hikes from here is going to make things difficult for the housing market to shake off what we are seeing,” he said.
PRD chief economist Dr Diaswati Mardiasmo said auction bidders over the past couple of months had been unsure about whether their mortgage rate would increase by the time they settled on a property.
“With that increasing amount of uncertainty and risk, a lot of people had become more hesitant,” she said.
“A lot of people remember the uncertainty of when we had that back-to-back cash rate hikes in 2022. That is why we do see that immediate reaction whenever there is a rate hike.”
She said the outlook for the property market would depend on the global economy and the RBA.
“If there is another cash rate hike, that will affect the market even more. If it is held stable it will stabilise the market. At the moment it is a day-by-day situation.”
