Melbourne stock on market leaps to all-time high

By Leith van Onselen

Yesterday’s dwelling approvals data by the Australian Bureau of Statistics confirmed that the construction boom that has gripped Melbourne over the past three years continues:

Now SQM Research has released their stock on market figures for the month of June, which reveals that the number of homes for sale in Melbourne has hit an all-time high, tracking at around double the levels of early-2008:

In my house price outlook report, available at Macro Investor (sign-up for a free trial here), I outline why the Melbourne housing market has, by far, the worst fundamentals out of Australia’s capital cities and forecast -5% to -8% price declines over the next 12-months. Chief among my concerns was the growing oversupply of homes for sale as well as the large pipeline of homes under construction.

Most other cities also trended higher but less alarmingly:

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Leith van Onselen
Latest posts by Leith van Onselen (see all)


  1. UE, you have in various posts outlined the perfect storm engulfing Melbourne RE. Yet your projection of price falls is surprisingly modest – putting you in the slow melt faction. (I can’t cite your number as it is now paywalled) Do you really think Melbourne house prices are that sticky? They weren’t on the way up.

    And, has anyone seen reaction from the politico-housing complex to the big ABS census population and dwellings data revision and National Housing Supply Council recant? I think they are running out of lamp posts.

    • Bobby Fischer

      Further, we have seen in your previous analysis UE that housing shortages do not put a floor under house prices and that house prices are intimately related to credit issuance. Therefore, it is unclear why we would see an emergence of house price rises in the West for example, unless there were credit figures showing accelerating debt being taken on (in accordance with Prof Keen’s work). Is this happening?

      If not, then irregardless of the alleged supply shortfall (which we know often becomes oversupply post bust based on international experiences) we should be seeing price declines.

        • Bobby Fischer

          Long reply failed again. So summary as follows. YOU need to explain why the following does not indicate oversupply.
          -900K household overestimate by NHSC
          -RBA admission of 8% surplus housing stock to actual Australian households
          – weaker population growth than expected (vicinity of 300,000) in latest Census
          -100K increase in the number of vacant homes since the last 2006 Census
          – Based on this below – 160K surplus housing stock (20%) would not be an unreasonable estimate if proportions held true today
          – Hometrack estimate (2009) of surplus 1 – 2 million homes in Australia
          – Prof Keen’s mathematical analaysis showing that we have been consistently over-building in the period 1985 – 2009, except for a couple of years after the GFC

          – Phillip Soos’ research showing that speculative vacancy rates are 2 – 3 times higher than reported by the REIV in Melbourne using water supply usage as a measure of whether a home is empty or not. This pattern is likely to also repeat in other capital centres around Australia meaning that MSM ‘vacancy rates’ are propaganda – pure and simple

          – Household formation is seeing an increase in the number of persons per dwelling in Australia An increasing ratio of persons to dwellings will only exacerbate any housing over-supply in Australia

          – America also allegedly had a housing shortage, until it didn’t and a massive shadow inventory emerged. This is what happens in ponzi markets; there is excess production of the said good during the mania phase and post-bust, this inventory emerges.
          – American saw a large increase in the percentage of vacant homes after the housing bubble burst. In fact the percent of vacant homes reached all time highs for data going back to the mid 1960s
          – Housing policy and taxation distortions, in addition to significant taxpayer largesse have made holding specker properties off the market profitable during good times, when double digit capital gains have almost been guaranteed for the better part of 2 decades. Now that is no longer the case, we can expect the greedy specufestors who have been riding on the back of the taxpayers to appear to try and claim their unearned rent (capital gain)

          Please explain all of the above away Claw in order to proved your fabled undersupply please.

          • I already answered all of those as follows:

            -NHSC is just one mob doing modelling. Hundreds of thousands of renters weekly are paying high rents. These figures outweigh the figuring of some intellectuals.
            – Population growth was weaker than some expected. Probably caused by the high prices caused by the shortage of housing.
            – a report expected the world to end in 2009 so no need to build more houses. It didn’t, so more houses needed now.
            – Prof Keen uses statistical voodoo to deny the shortage. He has clearly been over-drinking.
            – Phillip Soos is surprised that many houses have little water usage. These houses are clearly not being used. They worsen the shortage faced by people who wish to live in a house and use water.
            – Household formation is seeing an increase in the number of persons per dwelling in Australia. Previously shortage-deniers claimed the falling ratio was proof of no shortage. What can they say now?
            – America and Ireland may or may not have had a shortage and may or may not have one now. Many people may or may not have believed this. None of this has any impact on the housing shortage in Sydney.
            – American saw a large increase in the percentage of vacant homes after the housing bubble burst. Australian census shows a large increase in the percentage of vacant homes (according to shortage-deniers). Clearly the Australian bubble too must have burst. Prices must rise from this point on.

  2. I live in Melbourne and am refusing to buy property. The supply versus demand curve is rapidly changing which means prices will continue to drop. No capital gains for the next 2 to 3 years.

    • BakuninMEMBER

      I think that’s being optimistic. In the last recession, it took seven years (1990 -1997) before median Melbourne housing prices surpassed their previous highs.

      The current situation is far worse IMO.

      • I think that’s being optimistic. In the last recession, it took seven years (1990 -1997) before median Melbourne housing prices surpassed their previous highs.

        It took _a century_ for real Melbourne house prices to recover from the 1890 crash…

  3. We are seeing a huge spike in clients wanting to build anything from a dual-occ to larger apartment buildings.

    With the amount of projects still on our books that are either just starting, halfway or nearing completion it certainly echos what I have just read above. The stock is only going up from here, and prices down.

    • I hope you’ve got a contingency plan for when some of them go under, and when the industry dies in the ass. You’re going to need to go into survival mode at some point.
      People will be fired etc.
      Maybe a good time to suggest/support your employees getting cross trained?

      Assuming the NBN continues, there’s a whole load of electrical, digging, and fibre work to possibly fall back on (depending on govt).

      • The Patrician

        There’s a few digging jobs going up north as well.

        The weather’s much nicer this time of year.

      • We have off-shore large scale projects going too with set-aside funding in place, so even if work dries up here I dare say we can at the very least survive a downturn for quite a few years.

        We went back to just the core staff after the crash in 2008 and since then have been doing pretty good.

        • BubbleyMEMBER

          Go North young man!

          Seriously, come to Darwin. We are desperately short of architects and building expertise.

          • Interested to know who is investing in the on shore larger on shore apartment buildings (of quality design), local or offshore, individual or companies? What is their justification or how do they see the investment environment, e.g. medium (5 yrs) or long term (10ys +)?

          • Any more info on this, I just had a quick look on seek and there was only a couple of architecture jobs advertised?

  4. another interesting observation is that stock levels tend to be lower in winter – whats it going to look like in Spring/Summer as more nervous home owners and investors put their home on the market? I think we can be sure there is no stabilisation occurring in Melbourne, simply put there is an oversupply and no one wants to buy ino a cash loss asset (between 1-3% net yields on stand alone houses) at a time when the best case scenario is a flat market. This by itself will exacerbate the oversupply, so I’m inclined to think we will continue to have falls – only the pace of falls is in question. Between 5-25% over the next year is my guess, broad I know but there are so many factors at play, the biggest one being a movement from cautiousness/nervousness to fear. Either way, you would have to be mad to buy a property in melbourne at the moment.

    • This is a good point. Certainly new listings tend to dry up during the winter months and then come back on in full force over spring.

      However, the charts would suggest that the cyclical forces have been overiding this seasonal occurance for some years.

      And lets face, when was the last time we had a ‘normal’ year in real estate?!

      • My family currently has a property as part of an estate, the RE Agent has advised to hold off until spring before adding it to market. Chances are there more examples of this

        • I’m astounded an agent would have advised this!

          IMHO the mass of stock on the market in Melbourne largely consists of inferior, investor owned offerings. Anything of quality and family appeal still moves reasonably well, albeit not at 2009/10 prices.

          Spring will be interesting.

          • Similar to my observation of the Melbourne market at this time – quality detached houses with land (3-4 bedrooms) in good locations (inner east and bayside) are still selling at close to asking prices – albeit a bit slower than a few years ago.

            Everything else (i.e. houses in the ouuter west and south-eastern suburbs and units/townhouses/apartments everywhere) are in the toilet.

            Question is, how long before contagion spreads and the whole market slumps – no more than six months I say.

  5. JamesRickMEMBER

    WOW…the really interesting question is how long the delusion and denial can go on.

    Every one of the pillars that have helped sustain this farce is slowly (unfortunately) being thrust into the wood-chipper of truth. The latest obviously being population growth and under supply.

    Surely by now some nervous people are eyeing the exit door…which might just be cleverly disguised as the spring selling season…

    • MsSolarFelineAU

      “Surely by now some nervous people are eyeing the exit door…which might just be cleverly disguised as the spring selling season…”

      Looking forward to cracking open the CM on Saturdays and seeing how extra-thick & juicy the property lift-out is!

  6. MsSolarFelineAU

    SARC ON/
    Hang on, isn’t there supposed to be a housing *shortage*?? /SARC OFF.

    Housing is *supposed* to be shelter, not something that you make money from. Over time, deflation and costs eat into so-called “profits”. Then, of course, developers cut corners (to *save* money) by choosing cheap sh***y fittings, and these “gods of money” expect us punters to go “ooohhh, aint it pwetty” when we see the display apartment/house. The display apartment and what you move into is *never* the same. (Unless you’re smart and add what *YOU* want to the Contract attached to the back of said Contract)

    You’ve always got to watch out for things to possibly go wrong.

    • Hang on, isn’t there supposed to be a housing *shortage*??
      Perhaps certain elites like the shortage, but to a decent person there is not supposed to be any unnecessary shortages of the essentials of life.
      So no, there is not supposed to be a shortage. However there is one (in fact many more than one) and I am trying to do something about it.

      • MsSolarFelineAU

        Claw, there is NOT a shortage of housing.

        “”However there is one (in fact many more than one) and I am trying to do something about it.””

        You must be one of those property-developers, or something.

        • Not a shortage of housing?


          I find that denying the shortage has more effect if it is done frequently and in capitals.

          • MsSolarFelineAU

            I am an anonymous woman posting on a blog, and you are p***ed off at me because I don’t believe what *you* think.

            I asked you a question, and you ignored my question.

            Yelling at me has got you no-where. So, if we met in real life, would you yell at me for my “insolence”?? Think about it…

            For those of you who _do_ want to think outside of the paradigm – YouTube – The Most IMPORTANT Video You’ll Ever See – Prof. Alfred Bartlett” This is the playlist.

          • You did not ask me a question. There is no question mark anywhere in your post.

            What was your question?

      • Claw, the shortage argument is rubbish, have you not watched packed to the Rafters ! 25% of young adults between 20 and 35 live at home with Mummy and Daddy. My house could take 4 lodgers, long on bedrooms short on inhabitants. Same right down my street empty bedrooms galore.

        Then there is my beach house – only 4 permanent residents live in a street that has 40 houses!

        • +1 the elasticity in housing demand is massively understated by the vested interests. And has been debunked countless times on this site and others.

        • Mitch, what is “THE SHORTAGE ARGUMENT”. There is no such thing as the shortage argument.
          In fact there are a range of shortages throughout the world.
          In Sydney young buyers face a shortage of decent housing.

          25% of young adults between 20 and 35 live at home with Mummy and Daddy. If true this is caused by the shortage. Solve the shortage and they will leave earlier.

          • Aristophrenia

            This is what is known as cognitive bias –

            “25% of young adults between 20 and 35 live at home with Mummy and Daddy. If true this is caused by the shortage. ”

            THere is a problem, it is therefore immediately caused by something which can only be solved with a solution which benefits your personal interests.

            The bias benefits you, and ignores the facts. The facts are there is no shortage – as you ignore, they live at home because the price far exceeds the demand supply equilibrium – pure economics.

            Have a nice day, and learn to listen and deal with the facts rather than straw men, cognitive bias – and above all – Dunning Kruger.

          • Aristophrenia, you reply is pure abuse and is also tag-team behaviour typical of a shortage-denier.
            Mitch is the one with the strawman. His bizarre empty-bedroom definition of shortage is used to build a STRAWMAN which he then refers to as THE SHORTAGE ARGUMENT.

            Mitch’s line of reasoning is rubbish and he is a coward for not responding.

          • Hahahha Claw, great show, you make less sense than a five year old child. Thanks for the entertainment!

            Btw, how much do you get paid per word you post here?

  7. A friend of mine is going through a breakup. They are selling their house in Niddrie. He told me the other day that they have had 3 open house inspections with a total of 9 groups coming to have a look – and at least 1 group he knows was the neighbour!

    The RE told him to lower his price, however he won’t budge. He bought in 2009 and wants to get what he sees as “fair value”. If he doesn’t sell at auction for the reserve, him and his partner have agreed they will rent the place out and wait until the market stabalizes. They will have to both chip in for the mortgage if (when) this occurs. I am even worried that he is overestimating the rental income he could recieve!

    • russellsmith55

      I think there’s an awful lot of sellers refusing to budge from their original buying price, as they don’t want to crystallise their loss. Hopefully low rent yields / high vacancies will kick a lot of them into action. Not like there isn’t enough stock on market already though 🙂

    • Aristophrenia

      Your mate needs to do some research. The stock on the market in that area (Keilor East, Essendon, Moonee Ponds etc) is through the roof – the prices are nothing less than spastic as well, 800K, million plus for not very much and it is easily the worst are of Melbourne – by miles. (Sorry to those who live there).

      Meanwhile the rent in that area is 300-400 for those properties. Completely and utterly out of whack.

      If your mate has a high value home he is in serious trouble. Wont get much rent for it at all, no chance – wont sell it either.

      If I lost my income, and needed a very, VERY, cheap place to rent with a nice house this is where Id look. This and Point Cook.

        • Aristophrenia, That is nuts. I guess that is all the house and land stuff coming online. Not sure why people continue looking at these new, esp when a few year old house is cheaper. Crazy

          • The Patrician

            Did the Chinese sneak into Western Melbourne on 30 September and throw up a 9000 home ghost city overnight?

        • russellsmith55

          That’s not a smoking gun, thats a smoking cannon…

          Thanks for the link Aristo this is a fun tool 🙂

          Specifically, found some fairly ‘pointed’ results in Cranbourne, Craigieburn, Point Cook, Keysborough, Pakenham, Epping, Hoppers Crossing, Box Hill and Croydon. Though I assume a lot of these are spiked by new estates being built. And it’s a shame none of these were in my immediate areas of interest.

          Feel free to share any other steep Everest climbs in the making!

          • 3020 – big change since 2008 – dont think its really estate based either.

            same with

            3137 – Kilsyth

            3136 – Croydon

        • Hey guys

          There was a bug in that chart, which affected the 2011 results. Its now been fixed. 2012 is all fine. Sorry about that. We have doubled checked all other regions and they were fine. It was just this one for some reason.

      • That is a terrible return! I think his rental expectations are much higher. His place is selling for around 650k but not even close to a good yield.

        His problem is he wants to “realize” a gain of 100k on the property. Which I doubt is realistic. Having said that he has the place looking great – but with that much stock on the market the few buyers out there must realise they can be highly selective and put in low bids. If I was him I would sell and move on with my life – he still can likely see a small profit if he is reasonable

      • the yields are dire across Melbourne (as noted by leith), but most dire in inner areas. I rented in hawthorne for 520 a week, had to leave 18 months ago when house sold for 1.3 million (hmmm awesome 1.9% gross yield anyone??). I currently rent for 600 per week in a place in Surrey hills worth 1.2 million (a highly respectable 2.3% yield lol). I’ve always maintained rental yield is the most important component in measuring value as it represents your opportunity cost of having money tied up in this asset versus another with better yields / income. Affordability (mortgage costs v income) constrains how high an asset can be bid up to, but does not ultimately justify the price paid. I think thats where Ross Gittin (today’s article in the age) and others get it so wrong when they talk of the permanently high plateau due to low rates. it implies people are always prepared to buy houses that cost 2-3 times as much to rent v buy. In a period of low gains watch the herd head for the exits.

        • The Patrician

          On a price v rent measure, the Economist rates Australian proerty as 48% overvalued against long term averages. (31 March 2012)

          I would imagine Melbourne would be on the higher side if that figure.

        • Squirell – I find it curious that Aussies focus on gross yield, as it does not include property management, insurance, council taxes, maintance, etc. I own some residential property in Canada, and keep an eye open. My investment hurdle is 7-7.5% cash on cash yield. So you can imagine that 3-4% gross yield seems crazy to me.

    • JamesRickMEMBER

      There is something I’v noticed about the language used by ordinary people who have been ‘tuned’ by the MSM in regards to real estate.

      People who use the word “softening’ or ‘stabilization’ for example…it’s not something that I hear in any other conversation when trying to express a feeling that describes anything else that’s of a similar nature.

      The reason seems to be a method of influencing the decision making process of the players in the housing market.

      ‘Softening’ obviously means ‘falling’, but it adds a certain level of slowness to the process. A very very soft fall perhaps.

      And ‘stabilizing’ instead offers the opportunity of a reversal of directions. The falls if they are happening (as if the could) are slowing…with a chance of reversal thrown in for effect.

      So generally, it’s given me an idea into how powerful, successful and effective these messages are in corralling the sheep into the shed…

      The most disturbing thing for me though, is the level of collusion that is required by the vested interests for this to be successful.

      • not surprised.

        if you hear/read something all day every day from “reputable” sources, it becomes part of your vocabulary quite naturally.

  8. McPaddyMEMBER

    Is there any way of working out (perhaps by comparing with sales volume data) how much of the stock on market is actually moving? I have a hunch that if that exercise were done it would show a significant (at least above average) amount of the “flow” resulting from properties being withdrawn from sale because of unrealistic vendor expectations, as in the Aussieoil story. I think this data point could be quite interesting and give a much truer complexion to what we’re seeing in the other numbers.

    • Not yet a succumbtion* I reckon.

      He still agrees with Eslake who “…estimates the present level of house prices is fully justified by the change over several decades of the two main factors determining the affordability of housing: household income and the level of mortgage interest rates.”

      Funny how those factors made no difference in so many other countries. And why are so many housing markets so depressed when interest rates are close to zero?

      * Yeah, I made that word up although there do seem to be a few Google results for it.

      • I think that is what RBA DGov Debelle was trying to articulate last week – that the land price decline would not render the big 4 banks insolvent. For that to be true they will need billions – the land market is worth $3.5 Trillion.

    • Melbourne crashing may not break the banks, but it would shock some other parts of the country. Given that market sentiment is such a key part of what keeps the bubble inflated, a loss of confidence should flow on to cause slides in some other markets. More so if cash-strapped Melburnians then offload investment properties that they hold in other markets.

      The complacency in boom states such as WA may still survive such an attack – for a while. People love to keep believing that “it will never happen to me” and “my country / state / suburb is different”.

      But in other areas where the fundamentals are seen as shaky (rental returns in Brisbane, with 30,000 public service job cuts on the cards, spring to mind) I would expect to see things heading downwards fast.

  9. Aristophrenia

    I have been looking for a nice farm with some acres – was looking in Gippsland and was incredibly dismayed and the absolutely insane prices being asked.

    I have done a LOT of research, and was eventually shocked that, to sum up, small farms with absolutely revolting hovels were asking exorbitant prices. And quite simply never, ever, ever moving. The entire region is sitting there on hovels expecting to get a million or more for what are essentially some of the worst properties on the entire eastern seaboard.

    Alternatively I can get for the same price more land, better developed, with heritage homesteads fully renovated for half the price from Eden to Kiama, Bowral, Batemans bay – warm, sunny, better soil, better climate, better production and the houses are quite simply stunning.

    I am yet to even come across a decent property in the entire region, its a disgrace. They talk about the region being depressed, there is no movement, there is ZERO activity, zero initiative and in my opinion they can all suffer. Its just ridiculous.

    I have come across 11 room Georgian mansions, fully renovated on 300 acres for far less than a 300 acre HOVEL in the Gippsland wilderness.

    Victorians have rocks in their heads and are in for a massive wake up.

    Milk is all produced in queensland and NZ by the way, as is beef – so there is almost NO excuse for this insanity.

    • Aristophrenia,

      I think some of the effect come into creeping growth areas, say farms near cranbourne etc. These are not really valued on a $ per acre production rate or anything, they are generally smaller, hobby farms, horse studs or priced up by speculation of growth boundaries. Also it is within an hour from the city.

      Other farming land can vary alot given how productive the land is, soil quality use of the land, closness to towns, river access, hills, irrigation, etc, size of the holding.