Reading the Sydney auction market means studying plenty of numbers. And yet, numbers don’t always reveal what you might be looking for. For example, data from the Domain Group in late September and early October suggested that Sydney’s north, north-west and eastern suburbs were the city’s busiest auction areas. How you interpret this though, depends on your definition of ‘busy’.

Weekly auction reports, like those produced by Domain Group, tend to focus on the number of properties up for sale, as well as the amount of properties that are ultimately sold – or cleared from this total. However, these figures don’t always give a complete view of what’s happening on the ground because a larger volume of auctions might actually mean there are too many available properties and that supply outstrips demand.

Generally speaking, clearance rates are helpful in that they at least show the level of buyer competition overall. Take, for example, the inner west of Sydney, which had 88 sales on 114 auctions in the week to September 20, according to CoreLogic RP Data. This represented one of the busiest areas in the city based both on volume of stock and sales. The clearance rate in the area was 77% for the week, right in the sweet spot of typical spring numbers. 

Similarly in the North Sydney to Hornsby region, there were a very high number of auctions over that same week at 183, which might mean there was a good opportunity to find a home. However, this area had 142 sales, which also equated to a 77% clearance rate – suggesting a strong level of buyer interest and competition. 

Making sense of the cool down

In some instances then, high stock levels aren’t all that useful to the prospective buyer if clearance rates are equally high. In reality, good rates of sale are more likely to entice sellers into the market than prospective buyers.

However, the currently cooler Sydney market is seeing high stock levels coupled with lower clearance rates, and this is indeed useful to buyers. In fact, Domain Group recently reported rather low clearance rates across the board, with the northern beaches hitting just 65% for October 24, the upper north shore just 62% and the lower north shore slightly better, but still only 73%.

So there might be better buying opportunities this spring, based on these figures, and also on falling prices. For example, Onthehouse.com.au crunched some numbers for The Real Estate Conversation to find out the worst performing Sydney suburbs by capital growth over the quarter to the end of September. It found that the three worst performers over the period were all surprisingly in the north, including houses in Middle Cove ($1.8m median), houses in
Wollstonecraft ($2.4m median) and units in Asquith ($713,000), each of which saw average price losses of between 1 and 2%. 

These short-term drops in median prices might only be slight but represent a slowing down of buyer demand in areas that have seen median values surge over the year to the end of July, as per CoreLogic RP Data figures.

Reading the market

Tightening lending rules and a generally more cautious approach to economic conditions by consumers are surely equally at play. However, as Onthehouse.com.au market analyst, Eliza Owen says, some popular suburbs have simply reached their peak in this property cycle and are now experiencing a downturn in capital growth. 

"Half of these suburbs are the sort you would expect to see starting to decline,” says Owen. "Assuming that the most expensive areas typically lead the market, it makes sense that suburbs on the north shore, northern beaches and in the city would be among the first to reach the peak of the growth cycle, and begin to adjust to affordability and yield.

"What is interesting at this point of the growth cycle is the [price] decline in relatively affordable dwellings, such as units in Winston Hills, Dural and Asquith. Areas such as these may be suffering an over-hang in the supply of units. 

"This is particularly the case where people are cautious to pay too much money for a small dwelling that is far from the Sydney CBD, where the fastest rate of jobs growth occurs."

In addition, recent data from the Australian Bureau of Statistics shows that since 2014, when Sydney experienced its strongest rates of growth for the current boom, more money was being lent to investors than owner-occupiers, says Owen. This is important because it means as lending rules tighten, investors appear to be leaving the market and prices in many popular suburbs may adjust in favour of owner-occupiers.

No two suburbs the same

Of course, any generalised declines in auction sale figures still need to be taken in context because some suburbs and even streets will continue to see high prices, even as the overall market appears to slow. For example, principal at Premier Home Finders, Bernadette Brennan says that in some northern suburbs where she works, prices haven’t yet fallen. 

"The mid-north shore, namely Lindfield, Killara and Roseville are [still] getting huge prices, particularly with prestige homes priced over $3m, with a lot of people attending open houses and auctions," she says. "I think this market has to fall but it isn't happening yet. This market has had huge increases in the last six months." 

And while Brennan saw a price adjustment on a recent sale, she says that the lower north shore is also still strong. However, she agrees that the decline in auction clearance rates is definitely impacting other parts of Sydney and it will most likely affect suburbs on the lower to mid north shore as well – just not yet. 

This might not be the best news for sellers but as we head toward Christmas, buyers can perhaps look at the market somewhat more optimistically.

By Jean-Paul Pelosi