Australian auction clearance rates just fell below 50% for the first time since COVID and the negative gearing changes haven't even kicked in yet

Australia just posted its worst auction weekend since COVID, and the tax changes supposedly driving the slowdown haven't even started yet.

The combined capital city auction clearance rate dropped to 47.4 per cent for the week ending 21 June, the first time it has fallen below 50 per cent since April 2020 and only the third time on record since Cotality started tracking in 2008. The other two occasions were the depths of the pandemic and a 40 per cent read back in December 2018, when APRA cracked down on interest-only loans.

Every major city went backwards. Sydney fell to 47.4 per cent, down from 52.8 per cent the week before and well under the 67.6 per cent recorded a year ago. Melbourne dropped to 50.6 per cent. Brisbane, where auctions are rarer to begin with, crashed to 33.3 per cent, and Adelaide fell to 40 per cent. All four cities are sitting well below where they were twelve months back.

Here's the part that should worry buyers and investors alike. The Federal Budget's overhaul of negative gearing and capital gains tax, restricting negative gearing to new builds and swapping the 50 per cent CGT discount for a 30 per cent rate with cost base indexation, doesn't actually take effect until July 2027. The market is already flinching at a policy that hasn't been implemented yet.

Westpac is now forecasting a 3 per cent drop in Sydney prices this year and a 4 per cent fall in Melbourne, effectively flat growth nationally. Cotality's Tim Lawless says prices won't climb again in either city until clearance rates recover above 65 per cent, a long way from where things sit now.

Naturally, the politics are split down the middle. Ministers Murray Watt and Tanya Plibersek are framing the cooling as good news for first home buyers finally getting a look in. Nationals leader Matt Canavan called it something closer to an engineered crash in economic confidence.

Whoever's right, the practical reality lands the same way. Fewer auctions clearing means fewer white goods and furniture sales, tighter stamp duty revenue for state governments, and homeowners feeling poorer even before their mortgage repayments change.

If a policy that isn't even live yet can knock this much confidence out of the market, brace for what actually happens when it lands in 2027.