The number of homes actually available for sale is Australia continues to fall. This kind of market momentum is exactly what you’d expect at this stage in the cycle, and tells us just why we can expect even bigger price rises in the year ahead.
The Australian property market has shifted up a gear.
In the first phase of the cyclical recovery, prices find a floor, and we start clearing through the stock that’s been hung-over on the market. After a while, it starts getting competitive for the popular properties, and prices start rising again.
That phase finished about a year ago.
In the next phase, prices generate momentum. That is, prices have been rising so strongly and for so long, that people simply expect that they’ll keep rising. The prospect of selling high and taking profit brings a lot more sellers to the market, but FOMO (fear of missing out) means that buyers are voracious, and the total stock available on the market actually falls.
This is where we’re at right now.
According to RP Data, there were close to a quarter of a million properties for sale in Australia in April. Of those, about 50,000 were new listings. About 200,000 were already on the market – relistings.
There has been a surge in new listings in recent months, and new listings are around 20% higher than they were at this time last year. People are seeing opportunities to take profit, and homes are going up for sale.
And yet even though new listings have surged, the actual total number of listings has fallen – to be a bit less than 5% lower than a year ago.
And that reflects an incredibly active market. We’re just moving through the stock incredibly quickly. Even though there’s a surge of new stock coming on to the market, buyers are snaffling it up faster than new sellers can supply it, driving the total stock available down.
Looking at the break down, new listings for houses are 20.2% higher than they were a year ago however, while total house listings are 4.5% lower. New unit listings are also significantly higher, up 22.6% while total unit listings are 5.1% lower.
The total stock on market peaked in 2012, and has more or less been on a downward trend through 2013 and into 2014.
It’s a pretty consistent story across the capitals. Only Canberra is reporting fewer new properties for sale, where they’re down 12% over the year.
Sydney is clearly leading the way though, and the number of new listings there is up almost 50%!! Wow. The total stock there is also down a huge 9.7%. It’s a ferocious market in Sydney.
Melbourne is also looking at a property rush, with new listings up 32%, and total listings down 4.6%. It’s not as wild as Sydney, but it’s clearly a city in an advanced boom phase.
It is interesting to note that total listings in Melbourne (33,144) are significantly higher than in Sydney (22,423), suggesting Melbourne might have a little way to go before it starts seeing the kind of price action we’ve seen in Sydney.
Because in Sydney in particular, but also in the rest of the country more broadly, this is what price momentum looks like.
Price rises have been bringing new supply to the market. People are encouraged to sell their homes. If they’re investors they take profit, if they’re home-owners they might take the opportunity to upgrade into sweeter digs.
But demand is running way ahead of supply. So even though more and more properties are coming on to the market, sales activity is through the roof, and that total stock on the market is falling.
So even though there’s huge demand from buyers, supply is actually shrinking. That means it’s even more competitive for the houses that are on the market. Sellers hold out for more and they can generally get it. Prices rise even further, even faster.
And the market has it’s own momentum. Prices are rising because prices are rising.
This is one of the reasons why we see such predictable cycles in the property market. Once it gets going it can charge ahead on its own head of steam.
It also shows us that we’re still in the early phases of the current boom cycle. When the boom matures, the number of new properties coming on to the market will start to stabilise, and this will see the total stock start to settle. At a point where demand is about equal to supply, then prices will steady.
But we’re a long way from that yet. Even though there’s a huge number of new properties coming on to the market every week, total supply is still falling. Even though prices already have a run on, these dynamics mean there’s a lot more lift in prices that we haven’t seen the beginnings of.
Sydney’s still leading the charge and not every city is going to reach those heights, but the momentum in the Aussie market is undeniable.
Hold on to your hats, folks.