If you want to know what will happen to house prices this year, a good place to start is the volume of properties on the market and the length of time they are taking to sell.
There has been mounting speculation about the health of Australia’s property market and the potential for a crash in prices, at least in part as a result of the recent boom in apartment construction on the east coast.
In essence, property prices come down to basic supply and demand principles – the more stock there is available, the less competitive demand there is to be to push up prices. And as we enter the new year, supply looks to be considerably outweighing demand.
Just over 12 months ago, the Sydney property market was booming, as insatiable buyer demand led prices to grow as much as 18 per cent year-on-year.
However, prices have since moderated noticeably. According to the latest figures from CoreLogic, Sydney home prices are up by just 1.9 per cent over the last year. Why? One need only look at the number of properties listed for sale.
As of 22 January 2018, Sydney had 19,034 properties on the market – a massive surge of 29 per cent on 12 months ago.
Now compare that with the likes of Hobart at the other end of the spectrum. Throughout 2017, Hobart house prices increased by double-digit figures, as affordability constraints on the mainland and a booming tourism market set that market on fire.
And what about its stock levels?
Of course Hobart is a much smaller market than Sydney, and would naturally have a lower volume of properties for sale regardless. However, its 987 listings is a whopping 38.4 per cent lower than 12 months ago.
Meanwhile both Perth and Darwin, where markets have suffered multiple years of price falls following the end of the mining boom, may finally be turning the corner towards positive growth. Both markets have seen a fall in the total number of listings compared with 12 months ago (down 5.1 per cent and 3.5 per cent respectively).
Another good means of determining the direction of house prices is to look at how quickly they are selling. Generally speaking, the higher the number of days on market, the slower that property market is, and the more subdued price growth is likely to be.
CoreLogic estimates that of all the capital cities, Perth properties are taking the longest to sell, with an average of 74 days for houses and 87 days for units. Meanwhile both types of property are selling fastest in, you guessed it, Hobart, at just 36 days and 35 days respectively.
The good news for property owners across Australia though is that, at least from these figures, there is nothing to indicate an impending crash.
Looking back at stock levels, virtually all capital cities have seen a reduction in the number of new listings come onto the market compared with 12 months ago. Lower numbers of new listings (i.e. a tightening of supply) will help to keep a floor under prices.
Perth has seen the biggest decline in new stock, down 12.7 per cent. This is followed by Melbourne (-9.1 per cent), Brisbane and Adelaide (-8.8 per cent) and Hobart (-8.5 per cent). Even Sydney has seen a fall of 6.4 per cent over the year.
Only Canberra (which edged up 0.8 per cent) and Darwin (up 2.1 per cent) saw a higher number of new listings this week than the same time 12 months ago.
So for anyone in business concerned about their levels of household equity, or whose business is directly dependent on a strong housing market, consider the fundamentals of supply and demand as the most basic means of judging the health of the market, before giving credence to the vested interests of doomsayers and spruikers alike.
Analysis: The misnomer of bank regulation and loan costs
By Adam Zuchetti
Analysis: Bank ‘misconduct’ a woeful understatement
By Adam Zuchetti
Analysis: Banks wrongly targeted as business custodians
By Adam Zuchetti