As demand for quality homes ratchets up in Melbourne, more vendors are choosing public auctions to sell their properties.

The swing-back to street auctions – as opposed to sellers deploying Expressions of Interest campaigns, private sales and other sales methods – reflects a “return to normal” mood in the market. It’s also a pointer to the increased confidence of both buyers and sellers.

James Labiris, a leading agent and professional auctioneer with Nelson Alexander’s Ivanhoe office, says ongoing housing stock shortages and a calmer interest rate environment are encouraging vendors to sell by auction.

Mr Labiris says agents active in suburbs like Eaglemont and Ivanhoe are not attracting the influx of stock they would normally expect at this time of the year.

“But what we have seen is a greater level of calmness in the market,” he says. “The narrative around interest rates is getting calmer, and we are starting to hear more about interest rate pauses and interest rate decreases.

“Buyer confidence has increased but stock levels haven’t. So we are seeing more demand than supply and the buyer numbers outweigh the number of properties being listed for sale.

In the six months to Christmas last year, the balance between properties and buyers in the leafy north-eastern suburbs was fairly even, with selling agents seeing roughly one committed buyer per listed property.

“Because of that, a lot of vendors and agents leaned towards Expressions of Interest and private sale campaigns,” Mr Labiris notes. “But with a more stable interest rate situation and higher confidence in the market, we are currently seeing two to three buyers per property, which has brought the auction process back to the forefront.

“Buyers prefer the auction method because it is transparent, so as the confidence starts to come back and buyers feel more empowered to go out and buy, they definitely prefer the auction method. This, in turn, is making more vendors lean towards deploying an auction to sell their homes.”

Property data clearly shows that auction clearance rates are on the up and up.

For the five weekends in April, the Real Estate Institute of Victoria (REIV) recorded results for more than 2,849 auctions. Some 1,863 properties sold. Of these, 1,449 sold at auction, with 506 passed in and then selling soon after. A further 411 properties were sold before auction.

The clearance rate averaged 77.8 per cent, well up on March’s REIV clearance rate of 75 per cent.

Analysts rank a clearance rate above 70 per cent as a “sellers’ market.”  It’s clear that market momentum is building again with the increasing demand being supported by high immigration and the confidence brought by the pause in April in interest rate rises.

Even so, in order to maintain tighter control of inflation, the Reserve Bank on May 2 opted for a surprise lift in the cash rate of 25 basis points, taking this rate from 3.6 per cent to 3.85 per cent. 

But the market appears to have bounced off the bottom. Figures released in the CoreLogic National Home Value Index reveal a return to positive price growth with Melbourne house values up 0.1 per cent over April and Sydney increasing by 1.3 per cent.

According to the Domain Home Price Report, Melbourne’s Inner East region has posted a quarterly change of +5.9 per cent. Higher-priced residential property is typically the first segment of the market to be hit by a downturn, but it’s also frequently the first segment to show signs of an upturn. For prospective vendors sitting on these kinds of homes, now might be an optimum time to sell, before more sellers hit the market.

Mr Labiris focuses strongly on helping vendors find a “hidden premium” when they sell. He firmly believes that a street auction is the best way to maximise results.

“If you look at all the methods at hand to sell property, the auction method is the only one that gives an element of emotion to the sales process,” he says.

“All the other methods provide the buyers with more premeditated decisions. If vendors run an Expression of Interest campaign, the buyers have four weeks to consider what their offer is going to be.

“Couples and families will sit down and spend hours and hours working out what number they are going to put forward. It is less likely that you are going to get an emotive price because people have more time to consider a price and be clever about it. They can make a decision based on their situation, whereas at an auction you have to make some very big decisions in a short period of time. Although there is a lot of preparation behind the scenes that goes into buying at an auction before the day, the auction method often produces a level of euphoric emotion when bidders realise that their next bid might actually buy the property. You often find that buyers are capable of finding an extra $5,000 or $10,000 to secure an auction, which they probably would not have put on the table in a premeditated decision.”

Mr Labiris believes the RBA’s move to lift rates by half of one per cent on several occasions in 2022 created a fear of the unknown among some buyers, prompting them to be far more cautious. But he says that’s now dissipated as the RBA opts for quarter-per-cent rate rises and rate pauses in 2023.

“The half-per cent rise was not crippling the average buyer’s capacity to buy a property, it was the unknown of where we are going that was keeping buyers safe and conservative. Many decided not to make bigger decisions, like buying homes.

“As the interest rate rises slowed to a quarter per cent raises, we then saw more confidence come into the market and more buyers at open for inspections.”

The pause in interest rate rises in April had a big impact on boosting confidence in Melbourne’s northeast, where higher-end property transactions are very discretionary.

“We are feeling a lot more confident about where the market now sits, and the confidence has flooded back,” Mr Labiris stresses.

“People work their whole lives to end up in the suburbs in which I sell homes, so we never end up in a situation where there is zero demand. But the demand drops when the confidence takes a hit.

“It's not usually a need when buying a $4 million house in Ivanhoe or a $2 million house in Eaglemont. It is a little bit of a luxury. So what happens is that when the confidence levels are not there, real estate agents notice that buyers are prepared to buy if a property is perfect, but they are less likely to make large financial decisions or stretch themselves, in times when their confidence is not high. The demand is there, but the connection to actually making a purchase is not strong.”

He says for buyers, “It’s not so much about at what level interest rates are, it’s about whether the interest rate situation is stable.

“It’s a much better time to sell today compared to six months ago.”

If you would like to discuss listing or purchasing a property in greater detail, please contact any Nelson Alexander office.