A clearance rate is a key property market indicator. It is generally used to establish if the market favours buyers or sellers. Clearance rates are expressed as a percentage and signify the number of properties sold, or cleared, at auction for the week or month
A low clearance rate, such as 60 per cent, indicates low auction interest and declining house prices, suggesting a buyer’s market.
A high clearance rate, such as 75-80% per cent, is considered a ‘hot market’ as buyer demand is high and available housing stock is low. A high clearance rate indicates the market favours sellers.
How is it calculated?
Every week the REIV collects about 97 per cent of auction results in Victoria. This is the highest of any data provider in the state. The weekly auction clearance rate is then calculated by dividing the total number of properties sold at auction (including those sold before or after auction) from the total number of auctions reported.
The REIV only classifies properties as having ‘sold after auction’ if they sell on the day following the auction. This then allows for a period of post auction negotiation. Properties sold two days after a scheduled auction are recorded as private sales as they are generally not sold under auction conditions.
The REIV also report the number of withdrawn and postponed auctions but these are not included in the clearance rate calculation as they have yet to be held and have not been subject to a full auction campaign.
The number of passed-in auctions are also reported but not used to calculate the clearance rate. Of the number of passed-in properties, the REIV also reports how many were passed-in on a vendor bid. An auctioneer can use two ‘vendor bids’ – bids on behalf of the owner – during the auction.
How do auction numbers vary?
When looking at clearance rates, it’s also important to consider the number of auctions held. A high clearance rate from low auction numbers is not necessarily indicative of a strong market, just as a low clearance rate from high auction numbers does not always indicate a declining market.
Weekends where more than 1,000 auctions are scheduled, or have taken place, are often referred to as ‘Super Saturdays’. High clearance rates during Super Saturdays generally indicate strong buyer demand.
The number of auctions held varies throughout the year and often depends on a range of factors. These can include interest rates, the number of properties on the market and time of year.
What can affect the clearance rate?
Many external factors can influence how many auctions are held as well as the weekend’s clearance rate. These can include sporting events, religious holidays and weather. Traditionally AFL Grand Final weekend has the lowest number of scheduled auctions.
What does it mean?
While the auction clearance rate gauges property market sentiment, it is only one of many indicators. It should be used in conjunction with your own market research. If you’re looking to buy or sell, it is always worthwhile attending local auctions and assessing comparable properties.
About the author: The Chief Executive Officer of realestateVIEW.com.au, Enzo Raimondo is an authoritative source of information for the Victorian property market and is now the vision of the industry owned real estate listing portal – realestateVIEW.com.au