Only 1 in 2 Sydney homes sell at auction as price crash warning lights flash red

The Westpac Banking Corp (ASX:WBC) share price is near multi-year lows.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Last weekend's auction clearance rates in Sydney fell close to 50% suggesting that property vendors will have to drop the price if they want to sell across Sydney's weakening property market.

Melbourne's initial clearance rate came in at 63%, with Brisbane at just 38% according to data provided by Fairfax Media (ASX: FXJ) owned Domain Group (ASX: DHG).

Sydney's clearance rates are now approaching levels last seen before the great property bull market of 2012-2017 that sent residential property prices around 70% higher on average across the Harbour City.

The soaring prices were mainly supported by two factors, overseas buyers taking advantage of a weakening Australian dollar (in 2012 the US dollar bought less than 1 Aussie dollar) and the RBA's cash rate cutting cycle that extended buyers' borrowing power.

Most data providers now record the peak of the property boom as mid-2017 and it's notable that as of July 1 2017 the foreign buyers' property surcharge was doubled from 4% to 8% in a move that met with the peak of property prices.

Exactly how much property in Australia is bought with overseas capital is unknown, but when you consider price-to-average-pre-tax-local-income ratios in Sydney are now around 13x, you can see prices are inflated by overseas capital. The 8% tax on foreign purchases looks set to keep downward pressure on prices.

The salient price pressure factor though is investors and owner occupiers' perception that the next move in cash rate will be higher, which means asset prices move lower.

The RBA and prudential regulator APRA are now caught between a rock and a hard place given prices are softening with rates already at an ultra-accommodative 1.5%.

The Banking Royal Commission also looks set to force banks to tighten lending standards which could put the breaks on credit growth as a core driver of bank profit growth and property prices.

Recently shares in the Commonwealth Bank of Australia (ASX: CBA), National Australia Banking Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all hit multi-year lows as the credit growth outlook darkens.

Most analysts are forecasting Sydney's prices could fall around 10% from their peak, although those forecasts may prove optimistic if a perfect storm of falling buyer confidence, rising rates, disappearing foreign buyers, and tighter lending standards hits.

As such bank shares face more weakness ahead and dividend investors may be better off forgetting yesterday's blue chips to look for the blue-chips of tomorrow….

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »