Stock Surge
How will the market perform with higher stock levels?
Now the 2022/23 financial year has closed out, it is fair to say it has been a rollercoaster ride for buyers and sellers. And there is still a lot more to go on this joyride. In late 2022, in some area’s prices were down 15% from their October 2021 peak. However, in the past 3-4 months, the market has staged a recovery in the order of 5 to 6%.
This is a recovery very few pundits saw coming and many feel is unsustainable. A low unemployment rate combined with historically low listing numbers is the primary cause of the rebound. The low stock levels meant active buyers were competing for fewer listings.
As we head toward spring though, we can expect listing numbers to begin increasing back toward long-term norms. There are a multitude of reasons for the expected jump in listing numbers:
Higher prices tempt vendors.
– The bounce in market prices is a highly unexpected yet welcome surprise for many. Depending on one’s outlook, the current recovery may be short-lived as mortgage pressure takes a greater toll on the economy. We have already seen many vendors who failed to sell in 2022 return to the market in the first half of 2023 and achieve a sale. Many landlords who have equity in their investment property are opting to sell the asset and place the equity against their home loan.
Winter is traditionally a time of tight listing supply. Whilst stock levels and unemployment both remain low, the market will continue to favour vendors. This scenario sets up a window of opportunity for prospective vendors who do want to sell.
Higher mortgage rates are forcing vendors onto the market – it is an unfortunate reality that many household budgets were not predicated on mortgage rates heading toward 7%. Core Logic’s Economist Eliza Owen was recently quoted ‘“There may be some motivated selling reflected in the next few quarters, where property owners willingly sell at a loss to avoid rising mortgage interest rates”.
“There’s an unusually high proportion of people selling within a short period of time despite incurring a loss” according to Owen.
In Core Logic’s Pain and Gain Report, they report the number of buyers who bought in the past 2 years and re-sold at a loss, has tripled in the past 3 months, when compared with the same period last year. Many of the boom-time buyers in 2021 are taking a loss in 2023 to escape the mortgage cliff.
In fairness, this is a national perspective and not necessarily directly relatable to the most affluent and desirable parts of Sydney or Melbourne.
The mortgage cliff will take some time to have a full effect on household budgets, but it will have an impact. The graph highlighting when the COVID-era fixed home loans expire shows the majority of loans re-setting over winter 2023. It is clear households are doing what they can to offset rising mortgage costs. Consumer confidence is down, yet the property market is holding. This speaks to the sanctity of one’s primary residence.
If the RBA were to drive mortgage rates and therefore the economy to breaking point, no amount of countermeasures would be able to offset the increase in monthly repayments for many households. It is a dire scenario and one we all hope does not occur because there won’t be any winners. In this scenario though, seller supply would rapidly increase at a time when buyer demand is being subdued by the higher rates.
The RBA seems to be winning the battle on inflation, which increases the chances of a soft landing. The latest inflation number of 5.6% down from 6.8% the previous month is very encouraging.
Seasonally stock increases from August onwards, in readiness for the spring campaign – this trend occurs every year and 2023 won’t be any different. The market’s performance for the first two months of 2023 was a continuation of 2022, with the vendor’s pricing under subtle pressure. Stock levels were elevated during this period before stock levels shrivelled over autumn and winter. How the market performs as stock increases heading into spring will be illuminating. Is the underbelly of the market soft or is the robust recovery of the past 3 months for real?
The impact of rising stock levels will vary from market segment to market segment. The performance of high-rise apartments in suburbia may be different from that of low-rise apartments in the inner city. Renovated homes may perform better than unrenovated homes, given buyers’ preferences for avoiding costs after purchase. For this reason, apartments with low strata rates will do infinitely better than apartments with high strata rates and/or special levies in place.
The continuing demand for housing due to surging population growth in some areas adds another layer of complexity when forecasting the next phase of the housing market.
The key to success for buyers and sellers over the next 12 months is to be well-researched and pragmatic. Panic and/or denial are at opposite ends of the spectrum, but they are the twin evils in an environment like the one we are in.
