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Methodologies for measuring auction clearance rates have come under scrutiny after a financial analyst slammed them as inaccurate.
In a November article in the Australian Financial Review, credit strategist at Aquasia Mark Bayley questioned the validity of auction clearance reports, saying current formulas are “inherently flawed and biased”.
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“Auction clearance rates should be transparent, real and representative of what happens at the auctions on any given Saturday; at the moment, auction clearance rates are anything but. This glaring deficiency needs to be addressed and rectified,” he wrote.
Mr Bayley’s criticisms were targeted towards auction clearance rates published by Australian Property Monitors (APM), which is owned by Fairfax Media.
The provider’s data did not reflect the true nature of the market since they did not publish total auction listings and did not include unreported auctions, he said. As a result, auction clearance rates tended to be higher.
“Misrepresentation of the clearance rate doesn’t change the price that purchasers are willing to pay or sellers are willing to accept. However, a higher clearance rate certainly has the potential to panic misinformed buyers into the market,” he said.
According to Stewart Saunders, national manager for brokers, brand, products and distribution at ME Bank, this news was concerning for brokers.
“I think for mortgage brokers it’s a concerning trend that we are seeing, but we should be demanding clarity and transparency in what’s happening in the real estate market to give consumers a clear picture of what the property market is doing,” he told The Adviser.
“I don’t contest the fact that we are seeing buoyant property markets in Melbourne and Sydney at the moment but we need to be clear about what we are reporting and making sure that the assumptions in the calculations, and any flaws in that methodology are clearly reported for consumers and people in the mortgage broking industry.”
However, senior economist at APM Dr Andrew Wilson defended APM’s methodology, saying that like any survey, it provided a snapshot of the full market.
“This is just a survey of auction results and the point of the exercise is that if there was an issue with the results of the survey, it wouldn’t reflect what is happening in the wider housing market but there’s no argument from anybody that the auction clearance rates are a very robust and reliable reflection of what’s happening in the auction market. That’s undeniable,” he told The Adviser.
Using Sydney as an example, Dr Wilson said APM’s reports showed the city had experienced record clearance rates and this was consistent with data showing Sydney housing prices rising to their strongest level since the city's boom period in 2002 and 2003.
“The whole argument, I believe, is that the headline rate of 80 per cent is in some way a distortion of the strength of the market when that’s ludicrous because there was a sense that this was influencing buyer activity,” he said.
“The thing that seems to be ignored is that if you include the total population in the measure, then when the market was in a declining scenario, say as it was two years ago, auction clearance rates would be under: they would be like 30 per cent, and it would be encouraging people to sell.”
In a statement, the general manager of APM, Anthony Ishac, said claims that APM did not publish total auction listings were entirely incorrect.
“The suggested alternative of using ‘the number of total auction listings’ as the basis for calculating the clearance rate (instead of the number reported) we believe would prove less statistically relevant, produce a clearance rate that would fluctuate wildly depending on the collection rate, and not reflect what is actually occurring in the market, resulting in a metric that would be anything but a 'real representation of the auction market' as claimed,” he said.
APM, he added,, was absolutely transparent about reporting rates, publishing both the number of auctions listed as well as the number that had been reported so the public could see the sample size on which the calculation was based.
