The final clearance rate for Melbourne over the week ending July 19th was 43%. This was down from 51% in the previous week, and low 60s over the three weeks prior to that.

This may look pretty disastrous compared to Sydney, which maintained clearance rates in the sixties, but in fact the opposite is true: because the Melbourne property market is so strong and the government is doing such a great job bearing the economic brunt for us, Melbourne’s clearance rates have dropped.

Let me explain why.

Let’s look at the percentage of properties withdrawn from auction and compare that with the previous lockdown. Prior to COVID-19, the five year historical average withdrawal rate for Melbourne auctions was around 3%.

Over the week ending April 12th, our first lockdown, withdrawn properties peaked at 64%. During the week ending July 19th, the withdrawal rate was 42%—definitely up from the historical average, but quite a bit lower than the first lockdown. An increased auction withdrawal rate makes sense given the need to respond to lockdown conditions.

Now, why am I going on and on about these auction withdrawal rates?

Because a high rate of withdrawn properties reduces the clearance rate and lowers volumes, because withdrawn properties are counted as a non-sale at auction.

You see, the clearance rate methodology was developed to understand the true representation of the success rate of auction methods, not as an indicator of demand. So the current low clearance rates, combined with the large amount of auction withdrawals, tell us that nobody is in an urgent need to sell right now and that the online auctions have not yet been fully accepted by the market, or that a different marketing strategy is required.

One other factor which shows me that we’re not doing that bad here in Melbourne is that the current withdrawal rate is quite a bit lower than during our first lockdown. Combine this with the fact that our auction market has rebounded rather quickly at the end of the first lockdown and you can see that current low clearance rates are not representative of the current good state of the Melbourne Property Market. This is because the high withdrawal rate has a negative impact on the auction clearance rate. The reason why there is a high withdrawal rate is that nobody is in a hurry to sell, thanks to the mountains that are being moved by our Federal and State governments.

The fact that the withdrawal rate, and the rate of actual properties sold at auction, is quite a bit better than the first lockdown gives me a lot of confidence on what is going to happen as soon as we come out of this lockdown, which may not be far off, provided we all do our bit.