After analysing the current market, one of Australia’s big four banks has found two interesting trends that, together, actively track market machinations, seeing how it moves before it actually has moved.
Analysis by the Commonwealth Bank of Australia (CBA) has pointed to the conclusion that the housing market is set to continue its current decline in the near future.
“The evidence suggests that dwelling prices will continue to deflate in the very near term,” said Gareth Aird, senior economist at CBA.
“There will be significant variations between capital cities and indeed suburbs within the same cities, but the broader trend should be one of continuing mild price declines.”
Of this evidence, the two trends of auction clearance rates and foreign residential demand have apparently managed to reflect how the property market will move after a delay.
Auction clearance rates
The analysis claimed a “sound relationship” between auction clearance rates and yearly changes in property prices, with clearance rates leading prices by an average of two months, but it mentioned that it is more indicative of a method of tracking Sydney and Melbourne prices.
“Auctions are more popular in Sydney and Melbourne as a means of selling a property. As such, the link between auction clearance rates and property prices is very much a Sydney and Melbourne story,” the research stated.
“The latest auction clearance rates imply that dwelling prices in Sydney and Melbourne will weaken further over the very near term.”
Clearance rates across the country have declined to 40 to 45 per cent, which the analysis noted was indicative of a softening market.
Foreign residential demand
Like auction clearance rates, the analysis claimed that foreign residential demand can also be used to determine property rises and falls, with foreign residential demand leading prices by an average of about four months, but noting that the lead had shrunk recently.
“From early 2012, demand for Australian property, particularly in Sydney and Melbourne, was augmented by foreign buyers. But over the past two years, foreign investment in Australian property has waned,” the analysis stated.
“This is primarily due to a lift in state government stamp duties levied to foreign investors as well as tighter capital controls out of China.”