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Auction clearance rates ‘flawed and biased’: analyst

Auction clearance rates ‘flawed and biased’: analyst

by Brendan Wong 5 comments

Methodologies for measuring auction clearance rates have come under scrutiny after a financial analyst has slammed them as inaccurate.

In a November article in the Australian Financial Review, credit strategist at Aquasia Mark Bayley questioned the validity of auction clearance reports, saying current formulas were “inherently flawed and biased”.

“Auction clearance rates should be transparent, real and representative of what happens at the auctions on any given Saturday; at the moment, auction clearance rates are anything but. This glaring deficiency needs to be addressed and rectified.”

Mr Bayley’s criticisms were targeted towards auction clearance rates published by Australian Property Monitors (APM), which is owned by Fairfax Media.

He said the provider’s data did not reflect the true reality of the market as they did not publish total auction listings and did not include unreported auctions. As a result, auction clearance rates tended to be higher and were not accurate.

“Misrepresentation of the clearance rate doesn’t change the price that purchasers are willing to pay or sellers are willing to accept. However, a higher clearance rate certainly has the potential to panic misinformed buyers into the market,” he said.

Senior economist at APM Dr Andrew Wilson defended APM’s methodology, saying that like any survey, it provided a snapshot of the full market.

“This is just a survey of auction results and the point of the exercise is that if there was an issue with the results of the survey, it wouldn’t reflect what is happening in the wider housing market but there’s no argument from anybody that the auction clearance rates are a very robust and reliable reflection of what’s happening in the auction market. That’s undeniable,” he said.

Using Sydney as an example, Dr Wilson said APM’s reports showed the city had experienced record clearance rates and this was consistent with data showing Sydney housing prices rising at their strongest level since its boom period in 2002 and 2003.

“The whole argument, I believe, is that the headline rate of 80 per cent is in some way a distortion of the strength of the market when that’s ludicrous because there was a sense that this was influencing buyer activity," he said.

“The thing that seems to be ignored is that if you include the total population in the measure, then when the market was in a declining scenario, say as it was two years ago, auction clearance rates would be under - they would be like 30 per cent, and it would be encouraging people to sell.”

In a statement, the general manager of APM, Anthony Ishac, said claims that APM did not publish total auction listings were entirely incorrect.

“The suggested alternative of using ‘the number of total auction listings’ as the basis for calculating the clearance rate (instead of the number reported) we believe would prove less statistically relevant, produce a clearance rate that would fluctuate wildly depending on the collection rate, and not reflect what is actually occurring in the market, resulting in a metric that would be anything but a 'real representation of the auction market' as claimed," he said.

He added that APM was absolutely transparent about reporting rates, publishing both the number of auctions listed as well as the number that had been reported so the public could see the sample size the calculation was based on.

Auction clearance rates ‘flawed and biased’: analyst
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