June 29, 2023 by Dymphna

The simple maths driving property prices

Sometimes property economics is tricky. Sometimes its not…

How’s that supply shortage going?

Getting worse actually, thanks for asking.

One of the key reasons why house prices are rising right now and will continue rising is that there just isn’t enough stock on the market.

Demand for homes to buy is greater than homes for sale, and when demand is greater than supply, Economics 101 tells us that prices will rise.

There’s been a shortage for a while now, but new data from Corelogic shows us that the shortage is actually getting worse rather than better.

The number of homes being sold each week is still greater than the number of homes being listed, which means the shortage is only getting worse:

Houses were sold at a faster rate than they were being listed in the three months to May as vendors continued to hold off and as buyers remain undeterred by further interest rate increases, new data shows.

A total of 78,700 homes were sold nationwide over the past three months to May, while only 68,250 were listed, resulting in a sales to listings ratio of 1.15 according to CoreLogic.

“This shows housing demand outweighs the number of new listings added to the market,” said Tim Lawless, CoreLogic research director.

“Despite the previously weak housing market conditions through the second half of last year, the sales to new listings ratio has held relatively high compared with pre-COVID levels.

“Even through the worst of the recent housing market downturn, the sales to new listing ratio across the combined capital cities hardly dipped below 1.”

A ratio above 1 implies vendors should have the upper hand as stock levels tighten, buyers are more competitive and vendors do not have to discount their asking prices as much, according to Mr Lawless.

A separate analysis by Kent Lardner, founder of Suburbtrends, also found that demand exceeded supply across 219 areas out of the 328 analysed, despite the prospect of further interest rate rises.

“As is the case for most markets, listings volumes remain very low as a result of many potential sellers being unsure as to what they can move into,” Mr Lardner said.

So the shortage is getting worse.

But it’s getting worse off a pretty low base. The shortage of housing for sale was already pretty epic.

When you look at the total stock on the market, you can see it’s a whopping 30% below the decadal average.

And new listings – the flow of new stock on to the market – continues to trend lower. 2023 is tracking 2022 so far, but both are well down on the new listings levels we saw in the five years prior. Current listings are 10% below the previous five year average.

And in a very simple nut shell, this is why prices are rising. There’s just not enough homes for sale.

And with sales outpacing listings, that shortage is only going to get worse.

Which means prices will keep marching higher.