John McGrath What's Driving The Spring Market?
The number of homes for sale across Australia is at a 10-year low, with new listings increasing only marginally in the month of September and overall stock for sale actually falling. This is highly unusual for the first month of Spring, which is traditionally our busiest selling season.
Overall stock for sale nationwide in September totalled 289,566 homes, according to SQM Research. That’s the lowest volume of any month in 2020. It’s even lower than the Christmas holiday months of December and January. This time last year, 23,200 more homes were on the market.
This low supply is due to a growing absorption rate, which means homes are selling faster than they can be replaced by new listings; as well as the impact of the second wave lockdown in Melbourne which has delayed the start of their Spring season altogether.
We expect a spike in listings now that private inspections and outdoor auctions are allowed in Melbourne again. This past Saturday, 309 homes were scheduled for auction, up 31.5% on the previous Saturday when restrictions were still in place and only online auctions were allowed.
Putting Melbourne aside though, comparatively low overall stock for sale is a common theme across all capital cities right now and it’s a big factor in keeping prices stable.
Supply is low for two key reasons. Firstly, owners who don’t need to sell are sitting tight. This is no surprise given uncertainty is high. Secondly, we haven’t seen any distressed listings because stimulus measures like mortgage repayment deferrals (8% of loans), access to super ($34.3 billion withdrawn by 4.5 million members) and JobKeeper (4 million recipients) are supporting households’ cash flow.
In Sydney particularly, continuing low supply is generating a bit of FOMO due to high pent-up demand, with many buyers who sold earlier in the year or in late 2019 still looking for a new home. Lockdowns, restrictions and a lack of stock have lengthened the process and now they’re having to compete with new buyers attracted into the market by the small seasonal bump in new listings.
We’re also seeing this low supply/high demand dynamic in key regional markets like the Central Coast in NSW, the Sunshine Coast in Queensland and the Mornington Peninsula in Victoria.
Desirable regional areas are enjoying a surge in demand from city people who can now work from home permanently and are leaving the big metros for a permanent seachange or treechange.
They are competing not only with each other, but also with the growing wave of retiring baby boomers and a new cohort of wealthy city dwellers buying holiday homes in lieu of overseas travel.
Demand in every location is also being driven by record low official interest rates, with speculation of another cut by the RBA from 0.25% to 0.10% in November. Whether this happens or not, the RBA Governor, Philip Lowe says they do not expect to increase the cash rate “for at least three years”.
There’s also fierce bank competition to attract new customers through low mortgage rates and cashback deals to cover refinancing costs. Credit will also flow more freely from January with changes to responsible lending rules making it easier to get finance for ordinary consumers.
This will have a direct impact on property by adding more buyers to the market and expanding their budgets, too. As we saw in the ABS lending figures for August, owner occupiers are already borrowing record amounts, so imagine what will happen when it gets easier?
Last week, we discussed dramatically increased consumer confidence in both of the Westpac and Melbourne Institute surveys for August and September.
Then came the pictures last week of hundreds of thousands of vaccine doses rolling off a production line at Pfizer, with the CEO announcing they expect to be ready to seek FDA approval for emergency use in the US in the third week of November, if all goes well with impending trial results.
Watch what happens to the market if that gets the green light!
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (October 26, 2020)
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