The residential auction market – now and into the future

Gary Murphy – Head of Allsop’s Residential Auction Department

Gary Murphy reveals the state of play in the residential auction market, what volumes are like and whether average sale prices are up or down

I am often asked about the state of the residential auction market and how it’s likely to behave in the near future. Well, the first bit’s easy; given the current state of uncertainty, the second is a lot harder.

There’s no doubt that sales volumes are down across the country. According to Essential Information Group, the number of residential lots offered and sold across the sector fell by 7.3% and 4.8% respectively in July. Receipts totalled £107.1m, down 4%. In Q2, residential auction sales decreased by 1.9% to 4,590 lots. The stats show that activity is down, but does that translate to values?

Since the start of the year, Allsop has raised £220m (76% success rate) from the sale of residential property at auction. This is in contrast to the first half results of 2018 of £256m raised with a success rate of 79%. However, looking back over the first three sales held this year, some common trends have been identified.

There is price sensitivity on both sides of the transaction. Many of those owners who have the choice to wait until market and economic confidence is restored are postponing their decisions to sell. Supply is supported by those who need not wait. These are the vendors with a duty to sell at “best price” – whatever that might be on the day. They include mortgagees, housing associations, local authorities and government bodies.

Realistic reserves enable attractive guide pricing and generate the highest receipts. That said, where figures are on the optimistic side, inroom activity will swing from deals under the hammer to a race for available stock immediately after the auctioneer’s announcement that a lot is unsold. Paradoxically, prices achieved during this frenzy will often be over the reserve.

Looking ahead

My gut feel is that auction values will remain pretty stable. This is based largely on the level of competitive bidding over reserve for lots sold under the hammer – and the standoff between buyers and sellers on unsold lots which, following a dance between the two, seldom culminates in a deal below reserve.

Writing market forecasts as an auctioneer is tricky. Not least because, at this point in time, nobody knows with any clarity whether we’ll survive a no deal hard Brexit, a hard-left labour government, an unrealistic “Boris bounce” and so on. But also, because I’ve always been aware of trying to balance realistic commentary with the interests of our clients and the sentiment of our bidders. So, without wishing to spook anyone, here goes:

• There will no doubt be buying opportunities over the second half of this year. Until certainty (read: confidence) is restored, prices will remain static.
• Volumes at auction are likely to continue on their present trajectory as less desperate sellers hold firm and postpone sales.
• Success rates will dip for those auction houses who are willing to compromise on aspirational reserve prices in order to sustain lot numbers.
• The delivery and proof of “best price” will become paramount for fiduciary sellers opting for auction as a route to market.

One to watch

The new build market will be one to watch. Prices are inflated artificially as a result of increased demand generated by the Government’s Help to Buy scheme. New build flats are like new cars. On resale they will be second hand (and not eligible for Help to Buy) and worth less than the fresh stock against which they are competing. Unless house price inflation comes to the rescue, which doesn’t seem likely, a new sector of negative equity could emerge from Help to Buy.

What’s clear in all of this, is that the auction room will remain the most reliable test of market value and buyer sentiment. Sustained activity over recent turbulence is a reassuring indicator of what lies ahead. It’s ultimately down to the ability of the auction houses to appraise correctly and price realistically. That will maintain bidding momentum and confidence in our market place