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Sydney and Melbourne property sales soar

Record low interest rates and funds exiting low interest term deposits looking for a home (excuse the pun) are driving auction clearance rate in Australia’s two biggest capital cities.

Sydney is on track to beat its previously monthly auction clearance record of 77%, set 11 years ago, according to Australian Property Monitors (APM). Last weekend, Sydney’s clearance rate fell slightly to 79% from 80%, its first fall in six weeks. Melbourne’s clearance rate climbed to 78% from 73% a week earlier, and well above the 61% achieved for the same week last year, according to APM.

James Buyer Advocates’ Mal James has told the Australian Financial Review (AFR), “Traditionally the last month of winter is almost a non-event in terms of real estate. That is not how we are seeing the market right now.”

But rising auction clearance rates aren’t creating a property bubble, according to AMP’s chief economist Shane Oliver. Mr Oliver said that house prices were likely to go higher, but the broad trend is likely to stay flat in real terms (adjusting for inflation). The AFR says demand has been strong not just from property investors, but also first home buyers and those buying for a second or third time.

But it’s not just Sydney and Melbourne where auction clearance rates are high. According to RP Data, the clearance rate across all capital cities was around 72%.

The Reserve Bank has cut official cash rates several times since November 2011, and it now stands at a record low 2.5%.

Sooner or later, the demand should flow through to builders and building materials and housing supplies companies such as Boral Limited (ASX:BLD), GWA Group (ASX:GWA), Reece Limited (ASX:REH) and Adelaide Brighton (ASX:ABC).

Foolish takeaway

Coming into the traditional peak spring sales season, demand may well spike higher, which should augur well for those companies in the housing sector.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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