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About That Property Stock Shortfall

About That Property Stock Shortfall
February 20, 2020 Simon Pressley

Property markets across large parts of Australia are gaining some strong momentum at the minute.

The fact that sanity has prevailed with the Credit Gods (finally) allowing banks to actually approve loans means that those with an appetite to buy Australian real estate now have the capacity to participate. Hallelujah to that!

As the chart below illustrates, the volume of properties transacted within Australia fell off a cliff from mid-2018 and lack of availability of credit was the primary cause.

Month after month, the system was squashing the dreams of a swag of first home buyers, upgraders, renovators and property investors.

And the negative trend coming through a range of national economic metrics over the last year is largely related to the unintended consequences of the self-inflicted pain forced upon Australian real estate.

The real estate momentum that started building in H2 2019 is a bi-product of pent up buyer demand.

In addition to loans finally being approved again to responsible borrowers, thanks to three RBA rate cuts late last year, the cost of that loan is now an all-time record low.

Alas, there still seems no getting around having to pass a urine test, give a DNA sample, and be subjected to cross-examination as to the brand of toilet paper one buys.

While the total number of property transactions is still very low, there’s no doubt that buyer sentiment is high.

It’s buoyant out there, folks!

From a combination of what Propertyology’s buyer’s agents are observing as active participants in different locations and our own analysis of house value changes over the last quarter, many property markets are already running at double-digit pace.

In fact, the rates of annualised growth in some locations are currently in excess of 20 per cent.

In some locations, the main contributing factor to the spectacular rates of price growth is the fact that property owners haven’t quite found their way out of hibernation. The buyers are there but the volumes of properties listed for sale haven’t caught up. Yet!

APRA’s 4-years of tightening the credit screws and a federal election campaign that frightened the Bajesus out of everyone was an enormous wet blanket that suffocated everything.

But I suspect that (both) buyers and sellers are now largely positive.

The thing is, preparation time to participate in real estate is significantly longer for a seller than a buyer. And December-January has too many competing interests for a vendor’s time to do everything required to take a property to market.

Propertyology anticipates that the current pace of price growth will relax within 6-months as more property stock hits the market.

Thanks to our friends at SQM Research, the series of really cool charts in this report illustrates the last 10-year history of residential property stock listed for sale in each capital city plus a few incredibly tight regional property markets.

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Sydney’s 24,062 total properties listed for sale in January 2020 is 25 per cent less than the same time last year.

But it’s only marginally less than the 26,150 listings in January 2018 (the middle of Sydney’s downturn) and it’s an increased volume when compared to the 21,633 listings in January 2017.

According to Core Logic’s change in median values, Sydney municipalities such as Parramatta and Inner-West produced an increase in median AVM value of more than 14 per cent over the quarter ending November 2019.

In regional NSW, annualisation of the 3-month results says that double-digit price growth is unfolding in Orange, Armidale, Newcastle, Coffs Harbour, Kempsey and Maitland.

Generally speaking, the onset of a soft property market understandably means fewer buyers participating. That typically causes an increase in the volume of properties listed for sale.

When Melbourne’s real estate market downturn started in November 2017 there were 28,895 properties listed for sale. That had increased to 40,003 by November 2019.

Maribyrnong and Yarra were two of Melbourne’s hottest markets, running at 11.4 per cent and 9 per cent growth over the November quarter. If the current rate continues across the year, Darebin, Frankston, Casey and Brimbank are also in 20 per cent annualised growth territory.

Mildura and Warrnambool are also producing double-digit growth pace.

Perth’s property prices commenced their decline in July 2014. As the above chart shows, the volume of properties listed for sale began to increase from that time and they remained elevated for five years.

What appears to be the early stages of the reverse of this trend is one of a few positive signs for Perth. That said, the local economy must first improve further before Perth can stake any claims of having potential as a property market leader again.

Core Logic numbers suggest that Karratha, Geraldton and Port Hedland were Western Australia’s hottest property markets at the back end of 2019.

Turning facts and figures into charts for others to see a picture that tells an important story is a fetish of mine. I know, we’ve all got issues, right!

The chart above has a different look to the earlier ones. The economy in the very productive Australian agriculture Riverina region has been solid over recent years. Buyer activity was therefore strong, and the volume of properties listed for sale continues to reduce.

It’s no coincidence that Griffith has already produced a superior property price growth rate to 7 out of 8 capital cities over the last 3-years (17.6 per cent). Wagga Wagga might also be worth future observation.

Hobart’s 10-year Sale Listings chart is somewhat of a ‘template’ for what a once soft property market used to look like (at the start of the decade) followed by its transition to becoming (officially) Australia’s best market over the last 5-years.

When Propertyology first started investing in Hobart in April 2014 there were 4,422 properties listed for sale and its property market was pancake flat. When our buyer’s agents stopped investing there 2 years later, that number had reduced to 3,843 and property prices were just starting to heat up.

By January 2017, stock volumes had tightened to 3,333 and Hobart was officially hot property. It shouldn’t be difficult at all for everyone to see that an even lower 2,134 properties listed for sale in January 2020 (and a falling trendline) means there’s no sign of this growth cycle ending any time soon.

Again, Core Logic’s data suggests that Hobart is again running at double-digit growth pace.

In northern Tasmania, buyers have increasingly gained confidence from a local economy that’s driven by a variety of world-class agriculture products, great wineries, strong tourism, and a soon-to-be-built new university.

The above chart shows property listings in Launceston to be at an all-time record low and tightening further. 3.5 per cent price growth in just 3-months to November is a sign of a very strong year ahead.

Launceston was officially one of Australia’s best-performed property markets over the last 3-years while it also has a higher 20-year average annual capital growth rate than Sydney.

The 29,231 properties listed for sale in Brisbane in January 2020 is marginally less than 31,886 a year earlier and a tad higher than the 28,882 in January 2018.

Brisbane’s inner suburbs currently have the tightest stock volumes.

The municipality of Brisbane City Council is currently running at about 10 per cent pace. I think Brisbane will produce a solid 2020.

But, while every Tom, Dorothy and Sally continues to talk about Brisbane as Australia’s best hotspot, the collective sum of market fundamentals suggest otherwise and the trendline is another indicator supporting Propertyology’s interpretation.

Cairns ended 2019 with a spectacular 5.2 per cent quarterly growth. Mackay (3.7 per cent), Rockhampton (2.5 per cent) and Toowoomba were also strong, while Townsville and Scenic Rim were strengthening.

As the chart below shows, possibly the sharpest reduction in volume of properties listed for sale in all of Australia in recent years is in the beautiful port city of Burnie in north-west Tasmania.

When the quarterly results are annualised, Burnie is running at nearly 20 per cent growth pace. Given the property market momentum that Burnie gained in 2018-19 and the very tight stock listings, it would not surprise me at all if Burnie does retain this pace.

Burnie is one of dozens of Australian locations where statistical evidence confirms that strong property market performances over the last 20-years do not require enormous population sizes.

A Final Word

Official property data suggests that the 2-years ending mid-2019 were the worst on record in Australian real estate history.

Policies that brought the supply of credit in this country to a ridiculous trickle not only squashed the dreams of homeowners and property investors, it caused considerable harm to our national economy.

With property market momentum now heading back in the positive direction, there’s a segment of commentators that are already suggesting that APRA might consider tightening credit again. That’s utterly insane! Have we not learned anything?

Readily available credit for responsible borrowers is an essential ingredient of any country that has an aspiration for growth in jobs, wages, infrastructure investment, community confidence, and financial independence.

Anyone who’s tried to get finance for anything in this country would know full well that banks build in a bucketload of buffers so as every loan application is stress-tested to withstand changing circumstances and conditions.

Those buffers include taking a conservative position on a borrower’s income and assessing the ability to service debts if interest rates were to rise by (at least) eight increments of 0.25 per cent.

Why bother with buffers and stress-testing if APRA is going to tighten the credit tap each and every time property markets gain some traction?

Australians have been borrowing money for real estate for more than 200 years. The size of one’s debt matters much less than one’s ability to service the debt. It’s not rocket science!

Let’s not jump at credit policy shadows!

With the kids returning to school and everyday life normalising, Propertyology anticipates that we’ll progressively see an increase in vendors listing their property for sale, particularly in Melbourne and Sydney. Auction volumes are already starting to support that.

As stock volumes balance out, locations with the strongest overall fundamentals will produce the best and most sustainable price growth.

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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