The Sydney home auction market continues to slide, with skittish buyers increasingly sidelined by rises in interest rates.

Sydney reported its lowest clearance rate of the year on Saturday, with the market now tracking at its lowest levels since the spring of 2012. The 64.4 per cent weekend result was below the 65.1 per cent recorded the previous weekend and significantly below the 78.9 per cent reported during the same weekend in 2014.

The Sydney market is now on course to record clearance rates below 60 per cent this spring, which would be remarkable, considering the rate tracked near 90 per cent over May – just five months ago.

Announcements at the end of last week that the other major banks would follow Westpac in raising mortgage rates for owner-occupiers has fuelled market nervousness, with falling confidence now a driving force in the Sydney housing market.

The unprecedented shakeout in the market over recent months follows the implementation of various macro-prudential policies by financial regulators. These polices have resulted in higher interest rates for investors and now for owner-occupiers.

Relatively high numbers of listings continue to characterise the Sydney spring market, with supply now catching up with demand. On Saturday, 796 auctions were scheduled on Saturday, following 870 the previous weekend. During the same weekend in 2014, 753 properties were auctioned.

Sellers face stiff competition next weekend, with the Spring Super Saturday of auctions set to go close to the all-time record Sydney auction Saturday of 1128 set on March 28, 2015. Dwindling buyers will certainly be provided with plenty of choice and strongly motivated sellers will be keen to secure a deal in a fading market before the year ends.

Saturday’s results again revealed some sharp disparity between suburban regions, with higher-priced regions closer to the city continuing to record healthy clearance rates. Outer western suburbs, however, recorded significantly lower rates, with the north-west reporting a startlingly low 27 per cent clearance, with just nine of 33 properties auctioned selling.

Notable sales reported at the weekend included a five-bedroom home at 14 Harbour Street, Mosman, sold by McGrath Mosman for $4.5 million; another five-bedroom home at 32 Wentworth Street, Randwick, sold for $4.4 million by McGrath Eastern Suburbs; a five-bedroom home at 29 Wycombe Road, Neutral Bay, sold by Richardson and Wrench Mosman and Neutral Bay for $4 million; a four-bedroom home at 86 Wood Street, Manly, sold for $3.9 million by Clarke and Humel Property; and another four-bedroom home at 2 Cliff Street, Manly, sold by Clarke and Humel Property for $3.7 million.

The most expensive property reported sold at auction at the weekend was a five-bedroom home at 53 Edgecliffe Boulevard, Collaroy, sold for $4.92 million by Doyle Spillane​. The most affordable property reported sold at the weekend was a two-bedroom home at 13 Karoola Avenue, Kingfisher Shores, sold for $295,000 by Raine and Horne Charmhaven.

For a list of weekend auction results in Sydney click here.

Although clearance rates fell again at the weekend, trend auction prices continued to increase, rising to $1,136,750 compared with $1,115,625 the previous weekend, and remained 19.3 per cent higher than the $952,625 trend recorded during the same weekend in 2014.

Increased pressure on Sydney sellers to find a buyer will only intensify next weekend with a record spring day of about 1100 auctions expected.

Higher interest rates as a consequence of action by financial regulators have clearly contributed to the decline in the local market over recent months. Lower levels of activity from the property market can only have negative impacts on the economy. Reduced spending capacity by consumers and declining confidence heading into the pre-Christmas trading period will not be welcomed by retailers.

The Reserve Bank will likely take this into account when it next week determines the direction of official interest rates over November. The rapid decline in Sydney and Melbourne house price growth levels over the September quarter, as revealed by Domain last week, is also a factor the bank will likely consider.

Dr Andrew Wilson is Domain Group’s senior economist.

Twitter @DocAndrewWilson

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