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auction ratesThe already weakened property market has taken another hit with auction clearance rates dropping into the 50s in key capital cities, as buyers continue to hold back due to rising interest rates.

The result comes as new research figures demonstrate Australian property owners are coming under mortgage stress, with 75% saying they will be at least “a little” concerned if interest rates rise another 100 basis points over the next year, and another 5% saying they will be forced to sell.

This week’s results show Melbourne’s clearance rate at 61%, according to the Real Estate Institute of Victoria – a slight increase from last week’s 59%, but still quite low. SQM Research director Louis Christopher says these results are indicative of a market in pain.

“Absolutely, there has been a kick down in demand since the last interest rate increase. That was partly expected, but it also means the market is going to remain very soft for the foreseeable future. There is going to be a lot of stock hanging from the Spring campaigns.”

“This indicates that prices are likely to continue to weaken for quite a number of capital cities, with most of the weakness to occur in coastal areas such as the Gold Coast. That south-east area of Queensland is currently the weakest area of the market.”

And with the holiday season coming, Christopher suggests such low levels of demand will continue into at least the first few months of next year.

“I expect this will continue until at least the first few months of next year. It will be interesting to see how long this plays out, because there are only a couple of things that can stop this trend: a resurging economy, and interest rates going down.”

“I’m not seeing either. Downturns in housing are generally stopped when interest rates are lowered. So there is every chance here that we’ll continue to see weakness for quite awhile.”

This weakness could be exacerbated if interest rates continue to rise, according to a new survey by research group RaboDirect. The company’s figures, based on an online survey of over 2,200 people, show that if interest rates were to rise by over 100 basis points over the next year, 5% of mortgage holders would be forced to sell their homes.

The figures show 21% would be “very concerned”, but still able to make payments, while 17% would be somewhat concerned and 32% would be “a little” concerned. Another 15% say they would be “not really” concerned, and 10% say interest rate rises wouldn’t change their outlook.

However, Christopher points out these figures aren’t so bad, and a 5% sale rate wouldn’t have too much of an impact on the overall market.

“That isn’t too bad at all. You wouldn’t want to see that 5% hit all at once, but it’s something the market could cope with at the time.”

“To be honest, I think the market has already spoken for itself. We’ve seen the drop in clearance rates, we’re probably going to see a drop in housing finance approvals and we’ve seen prices fall for houses. The indicators suggest national weakness for some time.”

The Real Estate Institute of Victoria said it recorded a 61% clearance rate out of 836 auctions reported. Chief executive Enzo Raimondo agreed with Christopher, saying the figures show demand is set to remain subdued for some time.

“This current level of demand is likely to continue as stock levels will remain high with over 1,000 auctions expected for each of the next three weekends and buyers are more cautious in light of the banks decisions to increase rates above the decision of the RBA.”

Meanwhile, Australian Property Monitors reported a 53.8% clearance rate for Sydney, with 572 auctions reported and a total sales value of $199.7 million.

Adelaide recorded a 45.2% clearance rate, based on 51 auctions, while Brisbane, by far the weakest market in the country, recorded a clearance rate of just 7.1%, with 71 auctions and just two sales, with a total value of $900,000.

Story by Patrick Stafford www.smartcompany.com.au

Tags: auction, market, news, property, rates, research

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