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Auction clearance rates

For years I have struggled to understand the idea that clearance rates are a useful indicator of the demand dynamics of the home auction market – this is an example of this type of story.  A house will be sold when the minimum acceptable price to the seller (vendor price) is exceeded by the maximum price a buyer will pay (the buyer price).  Then a trade occurs and the house is sold.  The difficulty of course is that this condition requires the vendor price to be low enough as well as the buyer price to be high enough.  Clearance will not occur if vendors have unrealistic price expectations (e.g. the situation in a boom) as well as when demand is weak. Likewise I struggle to see why agents are praised for selling a highly desired set of apartments almost instantaneously – it seems to me they should be condemned for not doing the right thing by a vendor and charging a higher price.   I have asked real estate people I know about this but I never get an explanation that makes total sense – typical efforts include: The agency got it wrong, selling constraints imposed by financiers, vendor wanted a quick sale etc.  Does anyone have a half-decent reason for this?

6 comments to Auction clearance rates

  • peter rickwood

    because the market is not clearing. Sellers have a lot of downward rigidity (they will often sit on a house for a long time rather than drop their price), and demand fluctuates a lot (up and down). So a high clearance rate indicates high demand, usually. If demand is low more likely we get a maxican standoff between unrealistic sellers and prudent buyers. Which means volumes and clearance rates go down. I’m not an estate agent, and I think Australia’s property market is insane, but that’s my guess…..

  • hc

    There is truth to that claim. I can’t improve on it.

  • The property market in Australia is truly insane in my opinion, too!

  • peter rickwood

    @emma. Yeah, but as I think Keynes said: “the market can stay irrational longer than you can stay solvent”. Or, more appropriately here: longer than you can defer family tenure/location choices. This is certainly what happened to me: I’ve been thinking ‘bubble’ since 2003, but in the meantime I had kids and they reached school age and my wife got fed up waiting for a correction so now we are part of the problem 🙂

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