Housing market cooling off? High withdrawals and low sales could spell slowdown

Ever been so unpopular you straight up took yourself off the market? Turns out this was the case for a startling number of sellers this week, with nearly one in five Sydney properties withdrawn against a middling success rate of only 62%.

Heat in the housing market has been easing for a while now, especially now home loans have gotten more expensive. But could this slump of seller confidence and buyer activity indicate a deeper slowdown (and great news for first home buyers)?

Let’s unpack what happened this week in Australian property, and the larger market trends heralded by the data.

Noisy election weekends tend to make for a quieter housing market. Research firm Corelogic reports the number of auctions in Australia’s capitals was down nearly 42% from last week, though still slightly above 2019 election levels.

While clearance rates have been trending down all year, this week saw only 63% of auctioned properties sell – an all-year low. What’s worse, the final sales rate may be even lower. (For context, last year’s sales rate was nearly 76%).

But sales aren’t the only meaningful stats worth considering. What alarmed us this week in particular were the number of homes either sold prior to auction, “passed in”, or ultimately withdrawn from the market.

For an auction to be successful, housing vendors usually hope for more than a mere sale: they want at least two competing bidders to drive up the final price. In fact, hotly competitive auction lots were a huge force in last year’s property boom.

But these stats indicate that at least 80% of auctioned properties in Australia’s capitals didn’t successfully sell in the actual auction itself. Instead, sales were made before or after the auction, to diminished results, or not at all.

Nearly one in five homes sold prior to auction, which indicates that more and more sellers might not be willing to risk lacklustre competition (or no bids at all) at the main event. Instead, they’re settling for something resembling an off-market purchase, which can typically be at a lower price. 

Normally either a sure deal, itchy feet, or fear of the unknown would cause a seller to bypass the auction process altogether. However, lagging prices overall suggest these deals weren’t too good to pass up for their value.

Meanwhile, an 18% “passed in” rate means bids at those auctions weren’t as high as the vendor would’ve liked, so the top bidder was invited in by the real estate agent for private negotiations. What used to be a battle is now a white-flag truce on the part of the vendor. No wonder prices have dropped by -0.6% in Sydney and -0.4 in Melbourne!

Underwhelming auctions could indicate fewer investors and cashed-up hopefuls, who were the primary culprits of last year’s record-breaking 23.7% price surge. Now, the people who usually push first home-buyers out of the running have seemingly stepped aside.

Why are so few people turning up to auctions? 

Falling demand may be due to an alarming increase in the cost of housing finance, catalysed primarily by rising interest rates, the RBA’s latest decision, and the disheartening cost of living. 

With consumers and banks alike feeling the burn of runaway inflation, many investors have disappeared from auction lots, significantly reducing the competition and dragging down price growth. Instead of the bidding scrambles of last year, we’re seeing one-man shows. 

Uncertainty surrounding the election hasn’t helped the property market either, with both frontrunners proposing wildly different solutions to Australia’s housing crisis. 

Dwelling prices may have also boomed too far out of reach for most Aussies. Massive oversupply at the pricey end of the spectrum and undersupply at the affordable one cuts demand considerably, since all those who could buy, have, and all those who couldn’t…still can’t. It's a messy situation.

Fewer sales at fewer auctions suggests a housing cooldown, or at the very least a cooling off period. How long it will last is unclear, but its immediate effects have already been felt – and its causes likely won’t go anywhere soon. For buyers making decisions about property in 2022, these will be critical to keep in mind.

While we speculated on a housing slowdown earlier this year, we’re finally seeing glimpses of the lagging prices buyers have long been craving. Doom and gloom for sellers may yet mean sunshine for buyers!

Since sellers don’t have the bounty of offers they relied on last year, there could be more opportunities for buyers who are usually up against it. For those looking for hope and chances in 2022, now may be your moment. 

But before you rug up for a winter auction, make sure you:

• Save for a deposit after gauging how much you’ll need.
  
• Work out how much you can borrow. You can get an idea of your borrowing power with our handy calculator. This helps you prepare for your serviceability test. (But there’s still hope if the bank won’t lend you as much as you want!)
  
• Compare home loans and find the best rate. Luck favours the prepared! Head over to our home loan comparison hub to get started.

Eyeing up the property market? Eye up some home loans below, or have a read on how reforming the rental market could benefit homeowners.