What is a Clearance Rate and what does it actually mean to me?
I think it’s time we talked Clearance Rates.
What are they? Why do people care about them? And most importantly, what do they actually mean?
If you have even the smallest interest in the property market (and I assume you do if you’re reading my Real Estate blog), then it’s likely you’ll see an email, social media post or hear someone discussing what the weekend Clearance Rate was – and also offering their opinion on what it means.
It’s one of the most commonly discussed Real Estate terms but many people are still unclear on what that number actually represents and what to make of it.
So, let’s start off with the definition.
The Clearance Rate is the percentage of properties which were reported as sold or ‘cleared’ at Auction over the weekend. The figure you’ll most likely see, is the clearance rate for your city.
You’re probably wondering, how is the Clearance Rate calculated?
Every weekend, Real Estate data companies like RP Data, REIV and a few others contact agents directly to collect data from them on how their auctions went over the weekend. They then calculate the percentage of properties that sold against all of the scheduled auctions for that weekend.
If you get your Clearance Rates from multiple sources like I do, you may have noticed some differences in the statistics. The Number of Auctions, Number of Properties Sold and the Clearance Rate can vary depending on where and how the data is being collected.
Even though this figure is not the most accurate information – it is a metric which has been recorded for quite some time and is a good way to get an indication of how the Auction market is performing.
As a general rule, if the Clearance Rate is high (most property analysts agree high is over the 70% mark), then the demand for property is strong. A lower Clearance Rate, will generally indicate a lesser demand for property.
Be mindful though that the Clearance rate takes into consideration every property type across every suburb in Melbourne. Within the greater area, there are still some suburbs and property types which have a higher demand than others.
So what does the Clearance rate mean to you?
If you’re a seller in a market where the Clearance Rate is low (as it is currently across most capital cities) then it may cause you to reconsider the way you sell your property. Instead of running with an auction campaign, your agent may advise you to sell your property privately.
If you’re a buyer, you may want to take advantage of properties going up for auction knowing that the market has currently slowed down and you may be able to negotiate a good deal. You can also keep an eye out for Passed In properties and hope to find a seller desperate to sell and negotiate with them.
Clearance Rates are just one of many indicators you can use to determine the state of the Property Market.
As helpful as they are to get a general understanding of the market conditions, I recommend you keep a close eye on your particular segment of the market.
If you own a house or you’re looking to buy a house in a particular suburb then follow the prices of houses in that and neighbouring suburbs. That’s really the best way to understand how the market (that’s relevant to you) is actually performing.