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Auction sales of Australian homes hit two-year high

End to long downturn a boon for Australia's struggling economy and a blessing for construction sector

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Values in both Sydney and Melbourne have so far risen 1 per cent in August, a major turnaround.

Sydney

AUSTRALIA'S housing market seems to have come out of its doldrums with the hard-hit cities of Sydney and Melbourne set for their third months of gains as sales at auctions pick up remarkably.

An end to the long downturn could be a boon for Australia's struggling economy given the erosion of housing wealth has undermined consumer confidence and spending power. It will also prove a blessing for the construction sector, which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

Housing auctions across Australia's capital cities have reached their highest clearance rates in almost two years.

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Data from property consultant CoreLogic out on Monday showed home prices across the capital cities rose 0.7 per cent in August so far, much stronger than July's 0.1 per cent increase. The gains come after almost two years of relentless losses.

Values in both Sydney and Melbourne have so far risen 1 per cent in August, a major turnaround. Prices in Sydney have been falling since mid-2017 and are still down 7.6 per cent from a year ago.

The improvement in August reflects a revival in clearance rates at property auctions, a popular method of sale in Australia's major cities, with capital cities just shy of 80 per cent last weekend.

Melbourne was host to 665 auctions last week, returning a preliminary clearance rate of 79.7 per cent and marking the fifth consecutive week of above 70 per cent clearance rate, CoreLogic data showed.

Sydney recorded a preliminary clearance rate of 84.7 per cent across 500 auctions this week, the highest since February 2017.

"Historically such strength has been consistent with house price gains in the order of 15-20 per cent year-on-year," economists at ANZ wrote in a note.

The pick up will be welcomed by the Reserve Bank of Australia (RBA), which cut interest rates in both June and July to an all-time low of 1per cent and has pledged to do more, if needed.

Analysts generally expect auction volumes, which have remained subdued so far, to start picking up as the market heads into the spring-selling season.

However, most economists expect this upturn to be modest despite the recent surge in activity.

"This reflects our view that tighter credit conditions will act as a constraint," ANZ economists said. "But there is considerable uncertainty given that interest rates have never been this low."

While a strong housing market will likely boost Australia's A$1.9 trillion (S$1.78 trillion)  economy, the returning frothiness could pose a policy challenge for both the RBA and the country's banking regulator. REUTERS