Understanding Auction Clearance Rates: Why Do Calculations Differ?

Understanding Auction Clearance Rates: Why Do Calculations Differ?

Auction clearance rates can serve as a barometer of Australia’s real estate market strength, particularly across its major cities.

These rates are generally a superficial gauge of market strength, because private treaty is still the most common means of property sale in some cities. Nevertheless, property predictions can be drawn when auction clearance rates are analysed alongside other factors and data points.

Clearance rates for Australia’s major real estate markets can be helpful for proptechs who leverage data, analytics, and technology to advance various aspects of the real estate industry.

What Is An Auction Clearance Rate?

The auction clearance rate typically represents the percentage of properties that sold on its advertised auction date in a specific market versus the number of properties that didn’t sell during a particular time frame (typically a week or month).

How Are Auction Clearance Rates Calculated?

There are variations in how clearance rates are calculated and reported, so it’s important to consider this and understand your data provider’s calculations. The variance in calculations means these metrics offer different views and are not interchangeable.

 

Variations to the Calculation

Calculation

Calculation (%)

Basic calculationPercentage of properties sold on auction date during a particular period (week or month)Basic calculation of auction clearance rates
Includes properties sold prior to and during auctionPercentage of properties sold prior to plus on auction date during a particular period (week or month)Basic Calculation + Properties sold prior to auction
Includes properties sold prior to, during and after auctionPercentage of properties sold prior to auction plus on auction date plus after auction date during a particular period (week or month)Sold prior + at + after auction Calculation 

 

What Do Auction Clearance Rates Tell Us?

Auction clearance rates are a crucial market indicator of real estate activity by gauging the numbers of buyers and sellers in a specific market during a certain time frame.

Generally, higher auction clearance rates indicate a higher buyer demand for property in that market, limited supply of available properties and/or with an increased likelihood of rising price, i.e. a hot market for sellers.

Conversely, low auction clearance rates indicates weak buyer demand, possible over-supply of properties and chance of reduced prices which is more favourable to buyers.

In Sydney and Melbourne, a clearance rate above 70% signals a seller’s market, below 60% suggests a buyer’s market, and 60-70% indicates balance.

But the true significance of auction clearance rates lies in its contextual analysis alongside factors such as listing numbers, days on market, withdrawn auctions, fluctuations and regional disparities.

By tracking these rates alongside additional metrics, analysts can anticipate market direction, and measure buyer and seller confidence.

Where Can I Find Clearance Rates For Australia’s Capital Cities?

Auction clearance rates in Australia are reported on a weekly basis.

Some organisations collect data from sales agents and aggregate the data by city and region, such as:

Some news outlets, auction houses and real estate agencies may also publish auction clearance rates for specific regions. Industry reports and analyses related to real estate may also compile this data to provide a comprehensive view into trends.

How Important Are Auction Clearance Rates?

For anyone involved in or impacted by the real estate market, auction clearance rates are an important indicator of demand levels, market sentiment, and potential shifts in property values. But when comparing available data, its crucial to understand the methodology behind the calculations of auction clearance rates.

Auction clearance rates should be used as part of a comprehensive analysis alongside other property data, localised research, and broader market factors. While auction clearance rates offer valuable insights into the direction of the property market, they are just one of many factors to consider, and a holistic approach incorporating various data points is recommended for a thorough understanding of market conditions.

How Might Auction Clearance Rates Be Used By Proptechs?

While not exhaustive, these are a few examples of how auction clearance rates might be used by proptechs and businesses working with real estate data.

  • By analysing clearance rates and buyer demand, price trends can be used to gauge competitiveness of the market. These could all be incorporated into tool development or software development, it could be used to optimise platform features, or to guide content creation to engage users.
  • Combining this information with localised data for property investment, integrating clearance rate data into risk assessment models could allow for more informed investment decisions.
  • Property valuation models could be enhanced with the use of real-time clearance rate data which provides more accurate and dynamic property valuations in areas of high auction activity.

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Understanding the Real Estate Market: Key Metrics and Statistics

Understanding the Real Estate Market: Key Metrics and Statistics

Navigating the real estate market can be complex, whether you’re a buyer, seller, investor, or industry analyst. One of the keys to understanding this dynamic market is to familiarise yourself with the various metrics and statistics that measure real estate activity.

These indicators provide invaluable insights into market trends, pricing dynamics, and overall economic health.

We’ll cover some of the most common metrics used in real estate analysis to help stakeholders better understand this dynamic market.

1. Sales Volume

Sales volume indicates the total number of properties sold in a specific period. This metric is a primary measure of market activity. Relatively high sales volumes often point to a robust market, while lower volumes may signal a slowdown.

A number of organisations offer this data in Australia, usually by state or even postcode for a laser focused lens on particular areas of interest:

  • HtAG
  • CoreLogic
Property sales

2. Median Sale Price

The median sale price identifies the middle value in a list of property sale prices. This metric offers a realistic snapshot of the market’s pricing level, avoiding the skewing effect of extremely high or low prices.

3. Average Sale Price

The average sale price is calculated by dividing the total value of all sales by the number of transactions.

The average sale price provides a broader perspective of the market’s general pricing trends.

For sale

4. Days on Market (DOM)

As its name suggests, DOM tracks the number of days a property spends on the market before being sold.

Shorter DOM periods typically indicate a seller’s market, whereas longer DOMs suggest a buyer’s market.

5. Listing Inventory

Inventory is the count of the number of properties which are actively marketed and listed for sale, also referred to as “active listings” or “homes for sale.”

Understanding the number of properties available for sale at any given time helps gauge the supply side of the market equation.

6. Absorption Rate

The absorption rate is a real estate metric that assesses how quickly homes are being sold in a particular market over a set period. It is determined by dividing the number of homes sold during that time by the total available homes.

Additionally, this formula can be flipped to determine how long it would take to sell the existing supply.

This rate measures the speed at which the market is ‘absorbing’ or selling off its current inventory, offering insight into market demand.

7. Price per Square Metre (or Square Foot)

This metric is calculated by dividing the sale price by the property’s total square metres (or footage).

This metric is handy because it allows for a direct comparison between different properties of varying prices and floor space.

8. Rent Prices and Yields

Rental yield is calculated by subtracting the total costs of your investment from the income generated by renting out your property. Typically represented as a percentage, a higher yield indicates increased cash flow and a more favourable return on investment.

For investment properties, monitoring rent prices and yields (rental income as a percentage of property value) is crucial.

Soil

9. Foreclosure Rates

Foreclosure happens when a lender seizes a property because the person who took out a mortgage fails to make the required payments.

Foreclosure involves a legal procedure where the property’s title is transferred from the homeowner (borrower) to the lender, who then sells the property.

The purpose of selling the property is for the lender to recover the outstanding loan amount.

The process is usually lengthy and doesn’t simply occur because a homeowner misses just one repayment; it occurs with more substantial lapse in payments.

The number of properties in foreclosure can indicate both the health of the real estate market and broader economic conditions.

10. Mortgage Interest Rates

Mortgage interest is the cost a lender charges for taking the risk of lending you money. The mortgage interest rate directly affects your repayments – the higher the interest rate, the bigger your payments will be.

This is why mortgage interest rates on home loans significantly influence buyer demand and market dynamics.

11. Construction Starts

The number of new building projects indicates future supply and market confidence.

The Proptech Cloud’s data listing contains statistics for Australian construction activity helpful for planning, demand forecasting and construction cycle timing.

The Australian government publishes building activity visualisations which shows dwelling construction trends over time, and the Australian Bureau of Statistics provides estimates of value of building work and number of dwellings commenced, completed, under construction and in the pipeline.

Soil erosion

12. Building Permits Issued

Building permits are papers which confirm that a planned building follows the rules set by authorities. It’s a written approval from a building surveyor, either private or municipal.

This statistic reflects the level of future construction activity and developer sentiment.

13. Vacancy Rates

Vacancy rates indicate how many rental homes in an area are currently empty and available for rent. To find this rate, take the number of empty homes in that area and divide it by the total number of homes available for rent.

In rental or commercial properties, the percentage of unoccupied units at a given time can signal market health.

14. Capitalisation Rate (Cap Rate)

Especially relevant in commercial real estate, the cap rate helps estimate the return on an investment property.

To find the cap rate, take the property’s yearly income (after subtracting expenses) and divide it by the property’s value. This rate is useful for comparing how good of an investment a property is compared to others in the same area.

If a property has a higher cap rate, it means there’s more risk involved. And usually, when the cap rate is higher, the property’s value is lower because its yearly income is less.

Biodiversity

The Use of Property Metrics and Statistics

These metrics provide distinctive perspectives on the real estate market. Depending on your role—whether you’re a buyer, renter, investor, realtor, or other stakeholder in real estate—each metric carries unique value, caters to different requirements, and provides diverse insights.

By understanding and analysing these indicators, stakeholders can make more informed decisions, predict market trends, and grasp the market’s broader economic implications.

Regardless of whether you’re a seasoned professional or a curious observer, keeping an eye on these statistics is key to understanding the complexities of the real estate world.

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Subscribe to receive the latest blogs and data listings direct to your inbox.

Read more blogs from The Proptech Cloud

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