Disaster looming in Aussie housing market as stocks plummet

House prices may not have plummeted – yet – but there’s another disaster looming in the market that could be about to change everything.

ANALYSIS

In the long history of property prices in Australia, the nation’s various property markets have rarely moved fully in sync with one and other. Across the decades there have been markets that have boomed while others have stagnated, even while the underlying economy may have been performing quite well.

But every now and then there was something approaching a synchronised boom, as a rising tide lifted housing prices across the vast majority of locales around the nation.

This is what occurred during 2020 and 2021, as the combination of record low rates, pandemic driven changes, and various government incentives drove housing prices higher across almost the entire country with relatively few notable exceptions.

Since the RBA began to raise interest rates in May of last year, various property markets across the nation have diverged significantly, with some showing strong resilience in the face of rising rates, while others are down over 10 per cent.

House prices across Australia are no longer experiencing a synchronised boom. Picture: Jeremy Piper

In February and March this year, yet another new chapter of divergence began for the property market, as some markets most notably Sydney, saw prices begin to bounce even as interest rates went higher and higher, while others saw continued price falls.

The big question is what is driving this divergence in outcomes?

In New South Wales, the potential end of the land tax option instead of stamp duty for first home buyers at the upcoming first budget of the Minns government could be a factor. With up to $66,000 more to be paid on stamp duty compared with the ongoing land tax option.

Looking at a breakdown of housing prices in the various capital cities by market segments: dwellings in the bottom 25 per cent, middle 50 per cent and top 25 per cent, a very different picture emerges.

In Sydney, the market is being heavily driven by the top 25 per cent, where borrowers are generally far less sensitive to rate rises and seeking bargains due to the harbourside city seeing the largest capital city price falls.

In Melbourne, it’s a similar story but to a lesser degree, except prices are roughly flat or falling in the bottom 75 per cent of the market over the past quarter of data.

Meanwhile, it’s a very different story in Brisbane, Adelaide and Perth, where the bottom 25 per cent of the market is performing by far the strongest. This is arguably due these cities having a lower entry price point than Sydney and Melbourne, while experiencing some of the most challenging conditions in terms of the nation’s rental crisis, which is driving some renters to consider home ownership where possible.

The elephant in the room

This brings us to arguably one of the major factors supporting capital city property markets across the nation, low levels of stock on the market and reports from industry professionals of a shortage of desirable properties in some locales.

Across the nation’s capital cities, seven out of eight have lower levels of stock on offer compared with this time in 2019, with the exception of Hobart which has seen overall stock on market rise.

In this seven-way competition Melbourne fared best, with stock on market down 14 per cent, Adelaide fared worst with stock levels dropping by 54.6 per cent. It’s worth noting that Brisbane and Perth also saw overall stock levels drop by over 50 per cent.

At first glance a large fall in new listings over the pandemic years and those that have followed seems fairly unremarkable, but when you begin to look at the number of new listings things begin to come into greater focus.

New capital city listings per capita in April fell by 26 per cent compared with the decade average prior to the pandemic. On this metric all the major capitals recorded sizeable falls, with Darwin experiencing the smallest fall at 27.5 per cent and Brisbane the largest fall down 47.5 per cent.

In terms of total listings per capita adjusted for seasonality compared with the decade prior to the pandemic, the capital cities in aggregate were down 31.7 per cent. In this comparison Melbourne fared the best, with total listings down by 10.3 per cent compared with the weakest performer Adelaide, where total listings fell by 57.2 per cent.

The outlook

As things currently stand new listings at a national and individual capital city level remain well below their pre-Covid averages once population growth has been adjusted for. The big questions for the property market going forward are can new listing volumes go even lower and how long can new listings be postponed?

The potential answers to these $9.6 trillion dollar questions (the total value of Australia’s residential housing stock) remains unclear.

The reality is we are still trying to fully understand the market and what is motivating potential sellers to keep their property off the market.

For example, at first glance it would be easy to lay the responsibility for the big falls in new listings at falling property prices and owners not wanting to realise what they may perceive as a loss in relative terms. Yet when looking at the data there seems to be little if any correlation between price falls and weak listing volumes at a capital city aggregate level.

Yet the major capital city market’s that have seen the largest falls in new listings relative to their pre-Covid averages are Brisbane and Adelaide, which have had very different experiences in terms of the trajectory of their respective markets. Adelaide has been one of the strongest markets in terms of the trajectory of prices and Brisbane one of the weakest.

While weak listing volumes are currently playing a major role supporting the housing market, how long these low volumes of new listings will continue is anyone’s guess. On the other side of the coin there is a sea of uncertainty stemming from the future path of interest rates, the duration of the rental crisis and concerns over how the Aussie economy will weather a global slowdown.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator