Auction rates dip slightly, but first home buyers still driving demand

National auction clearance rates slipped 2% on the weekend, but leading forecasting firm BIS Shrapnel says the flood of first home buyers still entering the market could push house prices up by 4% for 2010.

In Sydney, 69% of 213 properties cleared at auction, a slip of 2% from last weekend. Total sales were $108.1 million, according to Australian Property Monitors.

Adelaide also experienced a slump, with 67% of 36 properties clearing, compared to 74% last weekend. Total sales reached $10,898,000.

But Brisbane picked up, with a 61% clearance rate of 22 properties at auction and a total sales figure of $3,832,100. This followed a 39% success rate the previous weekend.

“Melbourne again defied the national trend, with a clearance rate of 83% making it one of the strongest auction weekends this year,” according to REIV CEO Enzo Raimondo.

“The clearance rate remained above 80% for the 18th weekend in a row and stock levels were very high for the year,” Raimondo says.

There were 707 auctions reported to the REIV, of which 461 sold at auction and 122 sold before. The total volume of auctions in Melbourne was $385.76 million.

“Demand among first home buyers remains high, with between 15,000 and 17,000 first-homes sales expected each month for the next five months,” BIS Shrapnel managing director Robert Mellor said at a Sydney conference last week.

This could result in total first home sales passing 200,000 for 2009-10, almost twice the number of homes sold in 2008-09, when first home buyers purchased around 130,000 homes.

Mellor says the first home buyer rush could drive national house prices up an average of 4% next year, with Victoria and NSW likely to see the biggest increases in sales. But he says Queensland is “vulnerable because the land is more expensive and infrastructure charges are higher”.

But with the first home buyer grants set to be phased out at the end of the year, the first home buyer boom will not continue in 2010, BIS Shrapnel senior project manager Angie Zigomanis told SmartCompany.

“The incentive is to do something before the end of the year while the (Federal Government bonus) is still in place and before interest rates, which are now at a 49-year low, go up again,” he says. “Those two things are giving the market a sense of urgency.”

“We expect to see a drop-off early next year, although this probably won’t be as big of a drop-off as there was in 2001 when the last home buyers grants were pulled back.”

This is because individual states’ aid to first home buyers and a strong rental market will continue to encourage first-time purchases, Zigomanis says.

“Renting is increasingly costly, so that ‘rent versus buy’ equation will continue to weigh up in their minds.”