According to the weekend sales reported by REA on the weekend, the clearance result was 67%, on face value a good result, yet prices have been reported as falling, or have they?

Of the 375, Melbourne metropolitan sales on the weekend, I have shown in the table below, a breakdown of price range , i.e. those properties reported having a value of less than $1m and compared to property offered over $1m, $2m, $3m and $4m.

Melbourne Weekend Results 10/9/22

The table illustrates that there are very few sales reported of mid to higher value property including family homes within the inner and middle suburbs (25km radius)of Melbourne.

66.55% of all sales last weekend were reported under $1,000,000.

This suggests to me that the stock offered last weekend and in the preceding months is predominately lower value property in the outer suburbs , secondary investment properties with compromise (that have not performed ), general investment flats ( now burdened by the Victorian State Governments 130 changes to the Residential Tenancy legislation ) and secondary property requiring high levels of renovation and maintenance.

Surprisingly, there were only 18 properties in Melbourne last weekend that had a reported sale of over $2,000,000.

This goes some way to explaining why clearance rates are holding in the 60%-70% range.

Clearance rate was 67% over the weekend.

In my experience, property prices do not fall when clearance rates are rising. A clearance rate of 67% would usually translate to price growth around 5% per annum, if maintained over a year.

In fact, we don’t see price falls like is being reported unless clearance rates fall below 50%.

Something is amiss. Let me explain.

When 66.6% of all sales reported have a value of less than $1m and 95% of all sales are below $2m, naturally a lower median price will result.

The median price is determined by selecting the mid point of the total number of sales within a certain period.

If during a period there is an unusually high number of lower price properties presented for sale, then this will result in a lower median price.

It is a statistical aberration and does not mean that all property prices are  falling. The only true measure to determine price falls is if the same property is offered for sale twice in the same condition over a short term horizon or when there is more balance in the price bands of property offered for sale.

In summary, do not be alarmed by commentary that prices are falling and understand that simply, there is a higher number of lower priced properties being offered for sale than usual at this time.

Prospective vendors in the middle and higher price brackets are simply not participating in this market.

Anecdotally, there is little mortgage distress which is unlikely given a growing economy, wages growth and unemployment the lowest in 50 years.

Unless distressed or have a compelling reason (Death, Divorce, Debt ) prospective vendors are simply going to sit tight.

In times of fear and uncertainty, vendors retreat and withdraw listings. This is what has occurred and clearance rates will hold because there are more buyers for lower priced property,  due to affordability.

Listings of mid and higher value property will only emerge when we see some “green grass”.

When you see your neighbours house sell for a record price that’s what brings vendors back into the market.

There is no sense in selling a” brown farm “ and so for now, these vendors are waiting.