Greville Pabst: The problem with reporting on clearance rates
Australians love real estate. We love to talk about it, read about it, and obsess over the fluctuations that impact buyer and seller activity. We rely on property data to judge how the market is performing, but as someone who has been in the property game for some time, I urge buyers and sellers to consider the validity of that data before making a property move.
Every week in print, online, and broadcast news, a clearance rate percentage is released, and depending on whether it is low or high, we all get to feel good or bad about property for the next week.
The clearance rate figure is determined by data providers calculating the percentage of reported properties sold at auction, but does not include withdrawn or postponed auctions. The data is also reliant on agents submitting their own auction results, meaning some unsold properties won’t be reported at all.
The weekly clearance rate, however, is an inaccurate measure to determine the health of our property market. Firstly, the clearance rate differs from suburb to suburb, so media outlets draw a long bow stating the clearance rate represents the entire Melbourne market.
Additionally, clearance rates represent about 30 per cent of all sale transactions – most sales are conducted by private treaty. However, when the real estate market is weaker, sellers and agents will turn to private sale. Vice versa, when the property market is booming and there is more competition among buyers, there are a higher number of auctions.
Taking this into consideration, wouldn’t it be more accurate to use private sales to analyse the health of our property markets? Or better yet, a combination of private sales and auctions?
Media outlets across Melbourne use four different data providers to obtain their clearance rates. Concerningly, the clearance rates have been known to differ by up to 20 per cent.
Clearance rates help paint a picture of the property market but should always be supported with additional data and research.