Melbourne auction results remain strong heading into May, but a downturn could be on the cards

Melbourne Auction results are in and after recording the second-highest clearance rate of the year the previous weekend, the Melbourne market has remained relatively strong, with only a small drop. Last week’s clearance rate was a strong 81.7% – higher than Sydney’s at 80.3% – however in the first week of May it dropped to 78.7%.

Melbourne auction results

 

Same Saturday 2016Last weekLast week
Listed auctions (Saturday)911655759
Clearance rate73.1%81.7%78.7%

Will Melbourne Auction Results stay strong?

It’s not surprising that the Melbourne auction results have stayed relatively stable while Sydney has seen a larger drop in its auction clearance rate. Melbourne has a growing population and labour market, along with lower property prices, which may serve to bolster demand for property.

Having said that it’s likely we’ll see clearance rates drop in the coming months for much the same reason as we’ll see it in Sydney. Investors in particular will begin to feel the squeeze of interest rate increases for interest-only lending and APRA’s tightened regulations.

Plus, the Budget’s restrictions on foreign investors, which limit them to 50% of new development purchases, and also the introduced “ghost house tax” which will hit foreign investors who leave their property vacant with fees of at least $5,000, will start to impact clearance rates.

For Melbourne investors, low income growth and record low rental yields – 4% for apartments and 2.7% for houses – are also a concern, especially with mortgage interest rates on the rise. And rates are only set to get higher, since the Budget’s big bank tax is more than likely to be passed onto borrowers through yet more rate increases.

All these factors could well spook investors enough that we see a downturn in the Melbourne auction results until around at least August, although I would expect drops in Melbourne to be smaller than those in Sydney. In the September quarter, investor’s confidence may bounce back, and clearance rates in Australia’s major housing markets could be back up again.

Steve Jovcevski

Steve Jovcevski

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