Fear Of Paying Too Much At Auctions Rise

Fear Of Paying Too Much At Auctions Rise

Read time: 4 minutes, 25 seconds.

First home buyer loans have experienced a year-over-year increase of 66% since March 2021. That sets the total loan amount disbursed since then at $7 billion.

House prices have gone up a lot in the past year. As a result, sales values for all capital cities have also increased, with Brisbane, Adelaide, and Perth coming out on top. For these three capital cities, sales values increased by 107%, 86%, and 76%, respectively. Despite this, according to Finder, Sydney and Melbourne still holds the two highest median property prices of $862,500 and $710,000.

Amid this upward trend in the property market, it looks like sellers and buyers are reaching an impasse when it comes to auctions. Buyers have started to hold off on bidding for properties at auctions out of fear of paying too much for the property.

fear of Paying too much

Earlier in the year, buyers feared missing out on snatching up properties because of the lower interest rates. Today, the fear is much different and more impactful on the market. Right now, it seems like the focus has shifted from the interest rates currently offered, to how much a buyer will end up paying for a property.

“Vendors are still on this upward trend and buyers have stopped cold.” – Catherine Dixon, Real Estate Agent

The truth is that property prices have been soaring over the past months. A situation like this gives potential buyers a lot to consider. Like what if the property value drops after purchasing a property? Will it be possible to recoup what you spent or even make a profit reselling the house?

To be honest, there have been fluctuations in the property market over the decades. Right now, though, we’re seeing property values rising faster than it ever has in at least the last 32 years. Take a look at Sydney, for example. The median house price in Sydney went up by $129,400 in a matter of 6 months! Around the Central Coast, some property prices have gone up by 68% in a year.

The main drivers of fear

Many factors hinder prospective buyers, especially first-time home buyers, from closing the deal.

According to a survey done by Finder in March 2021 with 1,028 buyers, the biggest fear factor is simply not wanting to be ripped off. 48% said that they feared paying too much for a property at auctions. The thought of the cost of mortgage repayments came in a close second at 31%, with 21% fearing that the property value might drop after they buy it.

What’s happening more often at auctions is many buyers will attend but will not bid. While they refuse to bid at the auction, they are still open to closing the deal outside of the auction environment. A lot of this hesitation also stems from some people being afraid that they will be priced out of their desired property in an auction environment.

According to the Guardian, 32-year-old Michael at a Sydney Auction said: “Young people – and we’re not particularly young – we’re being shut out of the market!”

The auction clearance rate

The clearance rates at auctions have dropped since the beginning of the year. According to CoreLogic, in March, the average clearance rate was 80%. In the three months after that, it has dropped to 75.7% throughout the capital cities. While the average clearance rate was historically lower at 63.5%, this still demonstrates how the buyers’ state of mind can impact the market.

Of Sydney’s 15 sub-regions, 14 recorded a lower clearance rate than what was true for the last quarter. Melbourne saw an increase in auction clearance between March and June. Brisbane sold 69.6% of the houses auctioned, but it’s Canberra that came out with the highest clearance rate for this period. For this quarter, Canberra recorded an auction clearance rate of 88.3%.

The buyer’s current mindset

For the past couple of months, sellers controlled the market. Plus, the lower interest rates and rising property prices seemed to be working in their favour as buyers were frenzied, trying to take advantage of the low rates.

For now, the auction environment is a bit too hot for some buyers. Remember, buyers approach a private sale differently than how they would approach an auction. Selling privately, the buyer will go for the best price they can get. At an auction, the property goes to the highest bidder.

If you are a current buyer and some of the fears above ring true, MLS Finance can assist beyond your financial needs. We help buyers find the right property – auction or off-market through our network of buyers agents. If you want to get ahead of other buyers in the market, reach out to MLS Finance today.

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📩 Email: enquiries@mlsfinance.com.au

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