Australia's slowing pace of home auctions foreshadow price falls in the second half of the year: analyst

Auction clearance rates dropped under the 60 per cent mark in Sydney and Melbourne this weekend, leading an analyst to conclude a "correction" was underway in the housing market.

Clearance rates dipped to 58.6 per cent in Sydney from 60.7 per cent the weekend before, while in Melbourne, the clearance rates fell to 57.4 per cent - a new low over the past year - from 63.3 per cent the previous week, according to Australian Property Monitor's data.

The slowdown in auction activity - a gauge of the overall health of the market - is in stark relief to the 84 per cent auction clearance rates enjoyed by Melbourne in June 2009.

"There is a correction starting to take hold in certain parts of the country," said Sydney-based SQM Research director Louis Christopher.

"Overall in the second half of this year, it's likely the Australian Bureau of Statistics is going to record a fall in house prices for the September and December quarters, unless we have a cut in interest rates."

Capital city house prices rose 4.8 per cent in the March quarter of 2010, to post a 20 per cent rise in year, the ABS said in May.

Since March auction clearance rates - a leading indicator of home prices – have eased. Also, the volume of home loans – another forward read of home prices - has dropped every month for most of the year.

Prices were already retreating in the Gold Coast and Sunshine Coast, and would likely fall in Brisbane, Perth, and parts of Melbourne, Mr Christopher said.

"In terms of actual price, there will be some regions where prices may already be falling," said APM chief economist Matthew Bell. "These will be the affordable areas of capital cities, those most sensitive to interest rate rises, and indeed, preliminary indications are that some of the least expensive suburbs in Sydney have had some price falls in the last month or two."

A shortage of available homes in Australia – estimated to be about 200,000 units, as well as a strong economy and low unemployment are expected to prevent home prices from crashing, as they have elsewhere in the world, making a a 40 per cent drop in housing prices was unlikely, Mr Christopher said.

"But can we have a downturn in housing despite the shortage? Absolutely."

Morrell and Koren buyers advocate Christopher Koren said the decline in auctions suggest a fall in activity and prices to come. By his estimates, currently half of properties sell under the hammer with about a third being settled through private negotiation and the rest being passed in. "Things have gone back to how it used to be."

The buyer advocate said that during the past three or four years of market effervescence, "Melbourne was the boom-town, the premiere place where things were moving."

Melbourne's home prices jumped 28 per cent in the year to March, on buoyant local and international demand.

"Melbourne's longevity in this market has now gone down and it means rest of Australia will follow suit."

Geelong agent Michael Kerr of Gartland said his office has not had an auction in weeks but he still sees up to 30 qualified buyers flooding into open houses.

"I think it's a general slow down at the moment," he said. "This time of the year, things drop off a little bit."

Nonetheless, private sales remain very strong, he said.