Property inventory is rising

Nicholas Sproats

In assessing the property price outlook, it’s really just looking at first principles of supply and demand. From my perspective, there’s no ‘ah-ha’ statistic or ‘bucket of dead canaries’ as such. However, CoreLogic recently released figures that showed that across Australia’s capital cities there is 4.4 months’ worth of properties for sale.

Now that figure in an absolute sense isn’t particularly important, but its relative level versus history gives us insights into its future levels and a potential trend. At 4.4 months, that’s more than it has been at this time of year, every year, since 2012. Are we at the meniscus point where the bucket is full?

For societal functioning reasons, I would hope so… for now. But price cycles are fairly predictable, 3 or 4 years of rising, 3 or 4 years of stagnation. The question this time is will the very steep interest rate driven rises cause a slide? All pretty dependent on interest rates and if you are the RBA the last thing you want is a price crash. So I find it hard to see how the RBA wraps their head around raising rates.

If you are a residential property investor and prices stagnate, you have a pretty crappy yield outlook, high expenses (both operating and capital) and a depressing capital gain ledger. If they fall your equity starts to get eaten. All pretty obvious implications I know, but we may find a lot of people standing in a crowded stadium waiting for an act that wasn’t booked.

For the wider economy, the implications of price stagnation or decline are much more benign than 2 or so years ago, because other parts of our economy have recovered or are growing strongly – such as commodities, international students and tourism.

The number of developments that look fully built which have signs saying “apartments for sale or lease, starting at just xxx”; or the lack of stickers emblazoned across development boards stating “sold out in one weekend” or “100% sold”. I’ve been doing a fair bit of driving in the Western Suburbs in the past few weeks and it’s surprised me how many signs on built apartment blocks there were advertising apartments still for sale. Now developers may have been holding stock back to enjoy an ever rising market but that’s probably giving the benefit of the doubt.

One obvious statistic to watch for is unemployment because quite frankly right now most of the nation is not struggling to pay their interest on their mortgage or debt. However, if you lose your main source of income that’s going to be a different story. Right now not many people feel threatened in their job, however, if house prices stagnate we may find that small business owners that were using home equity for business expansion pull back on that strategy causing marginal employment to dry up and interest or rent to become difficult to collect. However, it doesn’t look like unemployment is going anywhere from the forecasts I look at.


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