Housing stock shortages underpinning property prices

Despite the rhetoric, buyers are finding the market conditions more challenging than they did late last year.

Price falls have not been consistent across all segments of the market either, adding confusion for many buyers and property investors as they find themselves caught up in bidding wars and competitive buying situations.

As a general observation, renovated properties are holding firm and some are experiencing price growth.

The stock shortage is notable in most state capital cities, a stark reminder that vendors follow the news and don’t aspire to sell in down-markets. Unfortunately for the vendors who have eventual plans to sell, the media commentary is not matching the coalface and some will be missing an opportunity to achieve a reasonable price.

National listing figures are down substantially in 2023 and this shortage is fuelling a supply-demand imbalance favouring those vendors who have desirable property to sell.

Not surprisingly, the market is further segmented by price points.

The highest quartile properties suffered the greatest as interest rates were increased by the Reserve Bank of Australia from last May.

Since then the lowest quartile properties actually exhibited modest growth, however, for the past quarter, it’s the highest quartile properties that have played catch up.

Stock shortages propping up property prices

Vendors aren’t excited about listing at the moment but there is still buyer hunger out there. Some buyers are upgrading or downsizing out of genuine need, while some are keen to purchase before their borrowing capacity gets more restricted.

It’s put a heightened demand on many cities and as a result, we’re seeing prices either staying firm (or in some cases, increasing) for some market segments.

Buyers are finding the market harder to tackle because the stats and media say one thing, but for some segments, it feels very much like a seller’s market.

I’ve been exposed to auctions drawing more than half a dozen frenzied bidders over the last month, and multiple auctions have delivered results several hundred thousand dollars above reserve.

What these properties have all had in common hasn’t been lost on me. All have been well-located, within both the inner and middle-ring, higher income suburbs of Melbourne, and all have been updated internally.

For these buyers focusing on price declines, this unusual environment will no doubt be creating some confusion, and sometimes, heartache.

There are three main reasons why vendors aren’t listing their properties for sale in this climate:

1. Vendors are fearful that they could be underselling their property.
2. Owners of these renovated products are reluctant to embark on another renovation now that construction costs, materials surcharges and builder availability is less than optimal. The Federal Government’s efforts to stimulate the construction industry during Covid with HomeBuilder had a negative impact on the cost of renovating, and consumers know it.
3. Owners in the higher income, inner and middle-ring suburbs are generally upgrading or downsizing in the same neighbourhoods. They are concerned about their inability to find a suitable home for their next move, and the old “chicken and egg” conundrum strikes. Many are saying to their selling agents that they are happy to sell, but only when they can find a suitable home. Stock shortage breeds stock shortage, unfortunately.

 Upgraders and downsizers feeling the pinch

The contingent most concerned with the stock shortage includes upgraders and downsizers who have sold prior to identifying their next home, and those who are feeling the pinch of the borrowing capacity reductions applied to their pre-approval limit with each rate rise.

Both are facing the prospect of sourcing short-term accommodation (which can be expensive when considering storage for their furniture also), or worse-still, long term rental.

They are acutely aware of the difficulties renters are experiencing with our current housing shortage in the rental pool. Combined with concerns about rental options, they fear the market recovery weakening their position on the property ladder if prices rise quickly, as occurred in 2020 and 2021.

Upgraders and first home buyers are more exposed to rate rises impacting their borrowing capacity and therefore squeezing them out of locations that they could otherwise have afforded prior.

Maximum budgets are weakened with each rate rise and for those who are nudging their maximum capacity, it is often a race against the clock to just get into the market before the bank says no.

As we approach the equilibrium for our cash rate, buyers are renewing their optimism and making the decision to actively pursue a home purchase again.

Time will tell, but the bottom of the market may well be behind us.

Vendor participation is a relevant marker, however, and once consumer confidence returns we can also anticipate a more level supply and demand ratio.