The re-opening of auction doors might not be enough to spur more activity in the housing market, given that the impacts of COVID-19 on consumer sentiment and other economic sectors might take a little more time to dissipate, according to an analysis by CoreLogic's latest analysis.
Eliza Owen, head of residential research at CoreLogic, said the easing of COVID-19 restrictions across Australia came at a time when employment positions have already declined by 7.5% while wages have shrunk by 8.2%.
"In the current market, consumer confidence is recovering from the lowest levels since the early '90s recession, and prices are likely to start falling," she said.
Owen said Melbourne, where 46% of all capital city auctions were held last year, already recorded a decline in values of 0.3% in April.
"This means the auction method of sale may be less popular with vendors and agents," she said.
Also read: Auction withdrawals returning to normal?
The social restrictions imposed to curb the spread of COVID-19 have resulted in a surge in withdrawals from the auction market, significantly pulling down clearance rates. Since the ban on auctions, withdrawal rates have reached as high as 45.8%. This is about eight times the five-year average rate of withdrawn properties prior to COVID-19, which was 5.7%.
Owen said clearance rates and house prices have historically been closely correlated. However, what is currently happening in the auction market is unique, given that it was the surge in withdrawals that caused the clearance rates to slump.
"At face value, the sharp fall in clearance rates implies housing values could follow a similar trend, however, there is a good chance the relationship has at least temporarily disconnected due to the high withdrawal rate dragging the clearance rate to artificial lows," she said.
Even with the lifting of social restrictions and the re-introduction of auctions, Owen said the housing market needs a further boost.
"Ultimately, being able to look at property, and bid publicly on property, does not increase capacity to buy property. The real estate industry is more likely to see a recovery when other sectors return to normal operations, and consumer sentiment lifts from its current lows," she said.
