Suddenly rising house prices are bad, bad, bad for real estate businesses. Witness sullied McGrath today down as much as -7% and on the verge of new lows after today’s CoreLogic results:
The reason is shrinkflation, fewer transactions as the nation is priced out of its own houses:
Why have they fallen and will they rebound? CoreLogic explains it:
CoreLogic estimates show settled transaction numbers have levelled over the most recent three months, however, at just under 110,000 settled transactions, sale numbers are down 5.3% compared with the June quarter and are 15.0% lower than the September quarter last year.
In markets such as Sydney and Melbourne where dwelling values are still showing strong growth despite lower volumes, lower transaction numbers are partially due to low advertised stock levels. There are fewer than 20,000 dwellings currently being advertised for sale across Sydney, which is less than half the number of homes that were listed for sale five years ago. Mr Lawless said, “Reduced stock levels create urgency in the market, adding to the upwards pressure on dwelling values”…
“Interestingly, real estate agent activity across CoreLogic platforms, as measured by the CoreLogic listings index, has been tracking higher than a year ago, despite the lower amount of fresh stock being added to the market. Increased levels of agent activity translating into fewer new listings indicates a heighted level of competition amongst real estate agents for listings. Sellers may also be nervous about selling in a strong market, especially with the consequential challenges of buying well in that same market.” …
“Despite the low mortgage rate environment, high transaction costs may also be a disincentive for transacting in the housing market. Due to bracket creep and higher dwelling values, we’ve also seen stamp duty dollar value payments rise substantially. In addition, percentage-based expenses such as agency commission fees for vendors have moved higher as the value of housing rises. It is likely that an increasing number of home owners are weighing up the pros and cons of the costs associated with selling and buying, or, staying where they are. It seems an increasing number, particularly in Sydney, are choosing the latter.”
I do not expect volumes to rebound much if at all. And as price stalls and falls spread the problems for realty stocks will multiply from market share to margins.
The upside is that the worse it gets for this sector the better the prospects for Australia.
