Clearance Rates and Median House Prices - Ineffective Measures
If we look at the clearance rates achieved in Melbourne over the last 2 weeks 67% & 68% you would think the property market was relatively healthy.
History and my experience tells me that when clearance rates sit between 65% – 70% generally you will see price growth of between 5% and 8%.
So what is going on and why are we being told that property prices are falling?
Something does not make sense. Firstly, under normal circumstances property prices do not fall when clearance rates are above 65%.
Clearance rates would need to fall within the range of 40% – 50% before we see falls in property price.
I just cannot see that happening, not with an undersupply of stock, our unemployment rate the lowest in 50 years and interest rates still at just pre-covid levels. In addition there is very little evidence of mortgage stress
So why are the clearance rates so healthy and why will this cushion property price falls ?
Could it be that properties are clearing because 95% of sale activity is for property within an affordable price range , 70% under $1m and 95% under $2m,
To give further support to this argument , rarely does the Bell curve lose value.
Prices don’t genuinely fall at the lower end of the price threshold where there is price affordability and high volume of buyers and sellers.
Typically, price corrections occur in the outliers, i.e. prestige property where the buy pool is lower and in the outer mortgage belt suburbs where loan to value ratios are above 90%.
It is obvious, that vendors for houses priced in the range of $2m – $5m have withdrawn from the market and simply waiting for market conditions to improve.
Why would you list your property for sale in a market of uncertainty and fear and so these vendors are having nothing of it and sitting on the sidelines.
I would take little notice of reports that property prices have fallen, The statistics just show that there are simply more sales of property at a lower price level, ( 70 % )under $1m.
To me, it is abundantly clear, that both median house price and clearance rate statistics have proved to be inefficient measures to accurately interpret , what really is happening in our market place