Unsold housing supply jumps

As Macrobusiness readers would be aware the Australian economy has entered a period of slow credit growth, in fact last month Australia managed to deleverage for the first time since the GFC. This lower rate of credit issuance is having flow-on effects across the economy and one of the most obvious places is house prices. We have already seen some significant price falls in some areas of the country over the last year and I have stated previously that until we see a turn around in credit issuance then falling prices are here to stay.

The rate of those falls will be determined by many things, but one of the most important is the how the market behaves as the prices slide. As I stated while analysing a recent report from RPData.

The market continues to slide slowly downwards due to the low rate of new credit being issued by the banking sector. If that rate does not change then it is to be expected that the slide in houses will continue. I think the rate of that slide is likely to continue to be slow, but at the back of my mind I do worry about some sort of Minsky moment when vendors suddenly capitulate en masse. My post on Brisbane this morning shows that some vendors are taking significant losses on recent sales and the longer the slide continues the worse sentiment will become. I am concerned that there will come a time when the market will suddenly shoot downwards, but obviously that is an opinion based on my own experiences of human nature and not something empirical.

Last month SQM’s “stock on market” data showed that the market was taking the news of lower prices in its stride. There were still a large number of houses on the market but the number of houses for sale fell slightly. This month, however, that trend reversed significantly.

I will leave it SQM research to provide their own analysis on what that means.

Stock on Market for the Month of July 2011

Embargoed until 12.01am Wednesday 10th August 2011

Figures released this week by property research house SQM Research revealed that residential property listings for the month of July 2011 rose by 13,476 to 377,315 nationally. This is a 4% increase from June 2011, as well as a 22% increase when compared to the same month (July 2010).

All capital cities except for Darwin and Hobart experienced a month-on-month increase, Brisbane and Melbourne experiencing the highest surge in stock- both increasing by 6%.

Melbourne has consecutively experienced the highest level in stock for some time now and this can be attributed to the large amounts of new residential developments currently being completed in this capital city.

This swell in listings reveals that potentially, sale stock has not yet peaked for the cycle and the May and June monthly declines occurred solely to seasonality.

Managing Director of SQM Research, Louis Christopher says “This latest rise in stock levels does not bode well for spring when seasonally, tens of thousands of new listings come on to the market. Unless there is a flash interest rate cut by October, house prices will almost certainly head south from here.

It won’t be a collapse of the market as there are still few forced sellers; however it won’t exactly be pleasant for the sellers. Buyers are largely going to be in the commanding position when it comes to negotiations this spring.”

 Key Points

  • Total online residential property listings increased by 4% during the month of July 2011, coming to a total of 377,315.
  • Nationally stock has risen by 21.9% year on year- increasing by 67,785 since July 2010.
  • Darwin was the only capital city to record a monthly decrease in stock, falling by 1% during the month of July.
  • Hobart experienced no change in stock whilst the remainder of capital cities recorded monthly increases.
  • Both Brisbane and Melbourne recorded the largest monthly increase in stock levels, both rising by 6% to 31,859 and 45,725 respectively.
  • The capital city to record the largest increase year-on-year was Melbourne whose stock has risen by 45% since July 2010.
  • No capital cities have experienced a year-on-year decline in listings, with Brisbane recording the least yearly growth- increasing by 16% since July 2010.
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    • They had large rises in stock before July 2010, which the 12-month change doesn’t reflect.

      If you look at a population-adjusted figure, then Sydney is looking good (although getting worse), Melbourne not too bad (although sinking fast!), but Brisbane and Adelaide, and to a lesser degree Perth are shocking.

      • Exactly. You need to look at more than the YOY figures to get a realistic idea of where each capital is at, especially in relation to each other. IMO Melbourne is about a year behind Brisbane and Perth in it’s correction, although I’d almost bet the correction will be sharper once it gathers pace.

  1. So Tim Lawless himself is worried about a Minsky moment? Doesn’t bode well for anyone hokked to the eyeballs for IP. Only problem is that a severe property crash doesn’t bode well for most people, whether they’re hokked to the eyeballs for IP or not.

    Recessions suck badly.

    • That’s what the spruikers claimed this time last year.buyers would be like bears waking from winter hibernation, just ravenous to snap up property in the buyers market. 12 months on and where are we again?

  2. So many people have all their money riding on the residential property market that any prolonged stagnation in capital growth is going to really hurt. Yet I noticed an ad yesterday from Westpac encouraging people to borrow for an investment property (“You can invest in residential property for less than you think”)… I guess the banks have a lot riding on residential property too and they can’t afford any talk that the days of double digit capital growth are over.

    • I really have a problem with banks.

      Doesnt the public realize that $6.3 billion profit for CBA is the equivalent of:
      $127 million each week or
      $18 million a day or
      $12,648 a minute PROFIT!

      This is only one bank!!! This seems more like a drain on the economy rather than anything to celebrate. I mean really don’t they just move money around and send out statements?

      These leaches need to be more heavily regulated, for the benefit of everyone.

      • I don’t really care about their level of profit but I do care about their potential risk to our financial system.

        Introducing a maximum LVR (let’s say 80%) for mortgages would be the first change I’d make, along with setting a maximum percentage of income required for repayments (and not one that leaves borrowers on the Henderson Poverty Line as currently used – http://www.macrobusiness.com.au/2011/04/another-ponzi-trick-exposed/).

  3. I think the dreaded covered bonds approved by Wayne Swan have been issued to a certain central bank, thereby boosting a couple of bank’s reserve ratios and allowing them to lower fixed rates and capture some business. I also think that some in the sharemarket were informed about this yesterday so a lot of insider trading got moving in a heartbeat.

  4. I might suggest lower house prices are not the end of the world. Many people aren’t buying because houses are unaffordable. Should prices come down, more people will start buying. Investors and retirees may want higher prices but who’s going to buy?

    I’d also like to see more analysis about the movement of homes over say, $700k compared to cheaper homes. The top end of the market tends to swing more extremely and skew data despite affecting only a handful of people in exclusive suburbs.

    • Lower housing prices on their own aren’t the end of the world – it’s the transition away from an economy that has grown fat on constantly increasing asset values that is so painful. The asset values drop but the debt and reduced economic activity remain.

  5. If nothing else these figures show sales volumes are still very low. It’s highly likely that more stock will come on the market over the rest of the year, and no doubt the spruik will be set to 11 with talk of falling interest rates, bricks & mortar safety etc.

    But unless FHBs come back in much larger numbers property prices will keep stalling/falling. Will vendors who’ve been holding their breath for about a year be prepared to wait out the summer in hope that the cap growth will outweigh their holding costs? Sentiment as always will be the key.