Discounting data paints a picture of a market struggling to maintain its footing.
Right now, the property market is holding its footing. It’s still upright.
However, it’s running along the side of a steep hill, and the grass is wet and slippery. There are rocks. If it’s not careful, it could easily find itself tumbling head-first into a ditch in the next six months.
That’s a real possibility.
And the signs are there. The ground is giving way beneath its feet. Maybe it’s nothing. Maybe it will keep its footing and keep charging.
But if we do end up in a ditch in 6 months, we’ll be able to look back and say that this was the moment that the tumble started.
And for me, the clearest signal on that is the level of discounting.
That is, it’s the number of vendors who are having to reduce their prices. That has increased threefold on year-ago levels.
From the AFR:
Home prices could fall by at least 10 per cent in Sydney and Melbourne as the level of discounting rose as much as threefold over the past 12 months, Domain data shows.
More than one in eight vendors (13 per cent) in Sydney were forced to slash their asking price in April to get a sale, as economic uncertainty and fears of job losses held back buyers.
Whoa. Hold up a second. “Forced to slash prices”??
Note the emotive and evocative language use. Scary stuff.
If Harvey Norman ‘slashes’ prices, what are we talking about? 25-50% off? Something like that.
Is that what we’re seeing in the property market? Can you score a property for 25% off and twelve months interest free?
We’ve got no idea. The discounting data only tells us if a vendor has reduced their price, not by how much. A $5,000 discount on a million-dollar property is almost nothing, but it will still show up in this data.
The only point I wanted to make here is never forget that the media is trying to sell you a story. Always. Even esteemed mastheads like the Financial Review.
Anyway, sensationalism aside, the data is solid, and it points to wide-spread discounting:
One in eight vendors in Sydney in April were forced to discount their houses to get a sale. This was almost twice as high as a year ago and the highest level recorded across capital cities.
More than one in ten (10.7 per cent) Melbourne vendors had dropped their asking prices – more than three times last year's 3.7 per cent level.
“The proportion of properties discounted tends to align with price movements, so it’s a good leading indicator of where prices are going to go,” said Nicola Powell, Domain's senior research analyst.
Now, while this is obviously not a bullish sign for property, it may not be as bad as it seems.
It’s quite possible that this is just a response to uncertainty. People who were thinking about selling over the next 12 months are probably thinking, well, now’s a good time to sell.
People with their homes on the market are also probably thinking it’s time to lock in a sale, in case the market keeps on falling.
So I reckon it’s more about uncertainty than it is a reflection of what’s actually happening on the ground.
Still, things like this can snowball. Prophesies become self-fulfilling.
So this is one to watch.
The market is slipping and sliding.
Let’s see where she ends up.