Supply is fading in a most unusual way.
The supply side of the property market is super-fascinating right now.
Remember that prices are set by supply and demand. It’s the first law of economics.
And it is true that demand is reeling from an onslaught of rate hikes from the RBA. Borrowing capacity is being reduced, but in a fluid environment like this, it’s hard to do the numbers on a deal properly because you can’t be sure where interest rates are going to end up.
So with all that going on, demand is fading, and the buy-side is thin.
But at the same time, sellers are effectively on strike.
It is true that there has been a pick up in “old listings” – listings that have been on the market for 180 days or more. They’re up 23% over the year to January, according to SQM Research.
But these old listings are a very small proportion of the market.
The key guide to where the market is going is new listings (less than 30 days). They plunged 19.6% in January to be down 13.8% year-on-year:
This is super interesting. With prices falling and interest rates rising, you’d be forgiven for thinking that sellers would be eager to cash out before prices fall any further.
But they’re not.
As SQM Research Managing director Louis Christopher says, they’re “waiting for the recovery.”
“The January holiday period is traditionally a quiet time for listings so it is no surprise we recorded a fall in activity over this month”.
“However, attention should be given to the new listing counts, whereby there has been a 13.8% fall in new listing activity compared to this time, last year. Most property owners believe it is a bad time mot sell right now and so are holding back, waiting for a housing market recovery”.
That’d be my bet. The vast majority of property owners would have bought well before the Covid bounce, so they’re still in the money, even with rates rising and prices falling.
If you were thinking of selling, it’s probably rational to wait for the market correction to move through the system.
But it does mean that supply is fading right now. And if supply is falling, that puts a floor under property prices.
You can see that clearly in the sales data. According to CoreLogic, actual sales volumes across the combined capital cities have fallen below their normal average:
The market is very thin right now.
And that’s keeping a floor under prices in the meantime.
And when the market finally digests the recent round of rate hikes, it should mean that the rebound on the other side should be very quick.
It’s supply and demand.
DB.