Houses take longer to sell as vendors won’t meet the market: SQM Research

Listings are on the rise as houses take longer to sell, amid predictions that the market is halfway through a price correction.

The residential property sector is coming under greater pressure on several fronts as homes take longer to sell, builders pull back and the big dip in prices is forecast to continue despite some respite last month.

Houses are languishing longer on the market, with national residential property listings lifting by 7.4 per cent in February, according to SQM Research.

The rise in property listings, which marks the opening of the new property season after the hiatus during the January holidays, came as investment bank Morgan Stanley said that home prices were still heading down despite a bump up in February.

Industry players are already aware of the tough conditions with a large-scale slowdown of residential building. Building approvals in January fell to their lowest level in over a decade as detached house and multi-unit approvals in January fell by 13.5 per cent and 43.7 per cent respectively, the Australian Bureau of Statistics said.

SQM Research managing director Louis Christopher said sellers were yet to clearly commit as the direction of prices remained uncertain.

“Despite the housing downturn, there remains a distinct lack of intent by many sellers to come to market and to meet the market,” he said. “This clearly reveals itself by the lower-than-average counts of new stock entering the market for February, and what sellers are there continue to hold the line on their asking price.”

Mr Christopher said sellers needed to understand the market was unlikely to catch up to their asking price at this time. “Only a minority of sellers recognise this, (which is) why there has been a rather large rise in older listings. However, the lack of distressed selling activity also suggests little panic by sellers,” he said.

National residential property listings reached 231,039 properties, up from 215,144 in January. The lift was driven by a 67.3 per cent surge in new listings over the month of February to 70,948.

This kind of rise is expected as the market kicks back into gear, but was below the average count of new listings for the month of February since 2017, which sits at 75,460 dwellings.

Sydney had a 16.2 per cent lift in listings, with Canberra and Melbourne recording solid rises of 21 per cent and 12.6 per cent, ­respectively.

SQM said that older listings continued to rise. Property listings over 180 days rose by 5.2 per cent over February and by 30.3 per cent over the year.

Hobart, Sydney and Melbourne had jumps of 217.9 per cent, 71.1 per cent and 39.7 per cent respectively.

Mr Christopher is cautious on the housing market, despite some recent signs that prices might be stabilising, with much hinging on when the RBA pauses cash rate increases.

National home prices bounced in February amid limited supply and continued strong demand, according to the PropTrack Home Price Index, released on Wednesday.

That index found that nationally, home prices were up 0.18 per cent in February, with all capitals aside from Hobart seeing prices rebound. Adelaide, Sydney and Melbourne recorded the largest jumps as tight stock levels kept competition concentrated, insulating home values.

These dynamics were influenced by the availability of properties for sale, with lower stock levels probably underpinning home prices to some extent.

Investment bank Morgan Stanley’s strategy team is expecting further price declines over this calendar year as rates continue to rise and credit conditions tighten.

They said that turnover was much weaker in February than a year ago and expect that the Autumn selling season activity will stay subdued, with little incentive to transact given price declines, rising rents and tightening credit availability, as they expect the cash rate could hit 4.1 per cent.

“We expect the housing outlook will remain challenging throughout 2023. Credit conditions look set to tighten further – we forecast the RBA to raise rates in March, April and May to a 4.1 per cent cash rate, with the rolling over of fixed rate mortgages having a further impact,” the bank said.

“This will keep credit conditions constrained and therefore prices under pressure. Our view remains for a 20 per cent peak-to-trough price decline and, as such, we believe we are around halfway through this current price correction,” Morgan Stanley said.

Housing developers are suffering. HIA senior economist Tom Devitt said the continuing declines in the detached sector reflected the RBA’s rate increases from last year.

“The last time detached house approvals were at these low levels was also the last time the RBA overshot with increases in the cash rate, which was in June 2012,” Mr Devitt said.

He warned of more pain to come. “The adverse impact of last year’s cash rate increases is still to fully flow through to the official data,” he said. “The higher cash rate is compounding the adverse impact of the rising cost of materials, labour and land.

“If the RBA continues to raise rates, they do risk a longer and deeper slowdown in economic growth than is necessary in this cycle.”