For the past six Monday mornings since the federal budget, there has been breathless reporting on how auction clearance rates have fallen over the previous weekend.

Rather than a sign that the world is coming to an end, as some politicians and media pundits would have us believe, it is actually a sign that housing is becoming more affordable.

Auction clearance rates record the proportion of auctions that were successful; in other words, auctions where the seller, and buyer could agree on a price.

A drop in auction clearance rates means that more buyers are unwilling to pay the amount that sellers insist on. Buyers are saying the price is too high, and maybe they’re right. Prices have increased five-fold in the past 25 years and 50 per cent since 2020.

It’s not surprising that this is happening now. The changes in the budget to negative gearing and capital gains tax, that passed the parliament last week, have reduced the tax incentives for investors.

Investors are no longer showing up to auctions in big numbers, outbidding first-home buyers and pushing up house prices.

Sellers’ expectations haven’t changed yet and this is adding to uncertainty in the market. While the market stabilises, people are going to be less inclined to buy and sell.

But once the market stabilises, people will get a clearer idea about how much homes are worth. Then auction clearance rates will go up again.

There are lots of predictions that over the coming months prices may drop between 5-10 per cent.

How much house prices could fall is unknown, but even if they were to drop 9 per cent that would take prices back to September 2024 and no further.

In other words, because house prices have increased so much, a 9 per cent drop is only going to remove about a year and a half’s price growth.

When the price of things falls, people usually celebrate. Petrol prices have recently dropped back down to where they were before the US and Israel attacked Iran. That is considered a good thing.

But if house prices drop, some media pundits are deeply concerned.
As polling last week showed, that concern is not widely shared. A Resolve Political Monitor poll found that a majority (54 per cent) of people supported lower house prices, compared to just 11 per cent who were opposed. The remaining 35 per cent said they were unsure or neutral.

The public understand just how messed up the housing market has become. They understand how hard it is for people to buy a home of their own. They have been waiting for a government to come along to fix the problem.

While some are saying that Labor has made a terrible mistake that will dog it for the two years until the next election, the latest polling shows an increase in Labor and the Greens’ vote.

It also showed a fall in support for the Coalition and One Nation; the two parties opposed to the reform.

While there is a lot happening in Australian politics right now and drawing conclusions based on a couple of polls is not advisable, it does show that opposing these changes has not been the immediate vote-winner that some claim.

We need to remember how rapidly house prices have been increasing. In the past five years, an average home has increased in price an average of $60,000 a year.

If house prices either drop a little or largely remain flat over the two years to the next election, then a first-home buyer, buying an average home will be paying $120,000 less than if prices had continued to increase at the average rate. That is a massive difference that will mean more people will be able to get into housing.

But more than that, for those that can’t yet afford a home, over those two years they won’t see house prices race away from them. They’ll have hope that if they work hard and save, they could one day afford a home of their own.

Matt Grudnoff is senior economist at the Australia Institute