'People are scared': Softening market drags down auction numbers

The number of homes that will go under the hammer this weekend is down by more than 60 per cent compared to the same time in the past two years.

The clearance rate is down to 50 per cent after only half of the 26 homes listed for auction last weekend sold.

It follows the downward trend at the end of last year when auction clearance rates fell below 60 per cent over six weeks according to Ryan Felsman, senior economist at Commsec.

"APRA's lending restrictions are the biggest factor as far as taking the steam out of the property market is concerned," Mr Felsman said.

A mere 17 auctions are scheduled across the entire Sydney region for this Saturday, which also falls on the Australia Day long weekend.

Paul Bloxham, chief economist at HSBC, also said the softening real estate market was dragging down the number of auctions.

"This time of year is always a slow period for auctions, but the numbers are particularly weak at the moment, suggesting cooler market conditions," Mr Bloxham said.

It's believed the combination of lending restrictions and increasing unit supplies will stagnate house prices, causing vendors to hold off on auctions until the property market picks up again.

But the particularly poor figures so far this year don't worry Seb James, managing director at Hunter James Buyers Agency, who puts it down to the holiday season.

"It's just the time of the year where people are just reluctant to waste a whole week on a campaign when many are still on holidays," Mr James said.

"January is a bad time to market your property. There's a sheer lack of stock, not because it's not there, but because vendors don't want to waste their campaign time when people can't be bothered to look around with the long weekend coming up."

The most expensive house sold last week in Sydney was in Punchbowl for $860,000, which surprised both the vendors and Chadia El-Hage, real estate agent at First National Greenacre, who expected it to sell for less.

"Prices have gone down but the two auctions that I've sold [in the last three months] I didn't think I'd get above $800,000," Mrs El-Hage said.

She was impressed the four-bedroom, freestanding home sold for $110,000 more than a home across the road in the space of a year.

"A lot of people are too scared to put their house up for sale because of how many people are saying the market is going to crash," she said.

Mr James forecast strong auction numbers in the weeks ahead.

"It's typically what we see every year, January is a bit slow and things tend to generally pick up in February," he said.

There are 160 auctions scheduled for the first Saturday of February, which is down 30 per cent compared to the 228 auctions at the same time last year and on par with the 162 homes up for auction in 2015.

"There won't be a massive shift away from auctions any time soon. I could be wrong and if we're sitting here in a month's time and there's still not much on the market then that's a different story, " Mr James predicted.

There may be balance of power shifting from sellers to buyers but HSBC economist Mr Bloxham said that's unclear at the moment.

"On such low volumes it is hard to tell if the challenge is demand or supply. We will need to wait until the volumes pick up, typically in February, before getting a clearer reading," Mr Bloxham said.

Director of sales and chief auctioneer at The Agency, Thomas McGlynn, also predicted February would be a good litmus test for vendors' appetite for auctions in the coming months.

"The market is still pretty resilient and until that changes people will still use the auction method to extract the best price," Mr McGlynn said.