Tighter credit stifling auction activity: ANZ Research

According to ANZ Research’s Blue Lens: The shifting power balance in the housing market report, fewer borrowers are willing to take risks at auctions, fearing that their borrowing capacity may fall short of their bidding intentions.  

According to the research, on a national basis, auctions accounted for 20 per cent of total sales in August 2018 compared with 14 per cent in August 2012. However, ANZ has said that auctions “may not work as well in a credit-constrained environment”.  

“Auctions typically work on a four-week cycle with more aggressive marketing to try and build a heightened sense of competition and FOMO (fear of missing out),” ANZ noted.

“However, in a world of tighter and more onerous credit conditions, it will be harder to get full credit approval before the auction given these short time frames.

“[Also] when a property is bought under auction there is no ‘cooling off’ period compared with buying via private treaty, which has a period of usually five days to withdraw from the sale with no legal repercussions.

ANZ Research continued: “In a world of easier credit availability, buyers at auction might be able to go above their self-imposed limit with reasonable confidence the finance will be available. Tighter credit suggests fewer buyers will be willing to take this risk.”

ANZ Research added that some borrowers may fear that a bank’s valuation of a property falls short of the purchase price, amid falling home prices.  

“Further, the prospect a bank’s valuation comes in below the purchase price rises in a rapidly cooling market and that too can be a risk more won’t take.”

Further, the research pointed to the recent drop in auction volumes, off the back of the decline in dwelling values, particularly in Sydney and Melbourne.

“In Sydney and Melbourne, auction volumes were more than 10 per cent lower in [the second quarter of] 2018 compared with a year ago,” ANZ Research continued.

“Total sales are lower, but auctions as a portion of total sales have dropped faster to 45 per cent in Sydney and 58 per cent in Melbourne in August. That compares with 61 per cent and 67 per cent, respectively, in December 2017.”

ANZ Research concluded that if the decline continues, auction volumes may become “less useful as a price signal”.

“Nationally, auctions are now under a quarter of total sales. That’s a challenge for those of us forecasting housing prices but another welcome development for buyers, we would think.”

[Related: Drop in home prices sharpest since GFC]