You don't have to buy at auction to learn a thing or two from the auction market.
Today's feature article is a short yet important one, as it highlights some of the key aspects of this market segment that can help us to gauge buyer sentiment, particularly among cash buyers and investors generally.
First, as the article points out, buyers at auction are likely to be more savvy, understanding the market prices post-refurbishment / modernisation. They know the likelihood of making a turn on their investment including the added costs beyond purchase for the property in question. If there is not enough money around to make a profit post-refurbishment then the number of sold lots will drop off.
This can help us to gauge the direction of the market a little but bear in mind that this is the collective sentiment of all auction purchasers and not a scientific predictor of where prices will actually go. Having said that, I have been reading recently that all market valuations are sentiment-based anyway; whether or not that is true, it would be wise to consider it as a part of our market evaluation process.
Referring to a key performance indicator (KPI) in auctions - the percentage of lots sold figure can therefore be useful for us. Here, the suggestion is that anything north of 80% in the London market next month will give a strong indication that the summer lull was just that and not a genuine indicator of a falling market.
There is a website from EI Group that is very useful to any auction purchaser and there we can find their newsletter publishing auction lots sold % both nationally and regionally. The link to the EIG newsletters page is here: https://www.eigroup.co.uk/market-data/newsletters/
July had a figure of 72.8% nationally in the residential sector. By definition, regions with above the average results would tend to suggest stronger markets and vice versa. London had 78.8% sold lots in July, which is close to the 80% figure mentioned, yet the Home Counties and perhaps surprisingly the West Midlands had better performance against this KPI in July. Perhaps unsurprisingly, Scotland fared poorly with only 51.6% lots sold.
So in summary, how can this % of lots sold data help us?
As mentioned, we can look at national and regional performance and see how strong the demand and sentiment is.
Another useful way of looking at this data is to look at trends and year-on-year performance - up, down or flat - this can give us clues to the demand in the market and sentiment in general.
Finally, digging deeper into the regional markets can help us to spot one of two things – potential for short-term capital growth through higher and trending upwards % lot sold figures or on the other hand opportunities to buy at a discount (either before, during or after the auction) in regions with weaker and trending down % lot sold figures.
As with all indicators, there are no hard and fast rules and they are just that – an indication, so don’t bet your house on guessing the market I say 😉
Source: http://unmodernised.com/whay-september-auctions-important-year/?__scoop_post=d1ec49f0-3d02-11e4-daf6-90b11c3d2b20&__scoop_topic=1424596#__scoop_post=d1ec49f0-3d02-11e4-daf6-90b11c3d2b20&__scoop_topic=1424596