Even though interest rates are up, fewer homes are being sold for less than their asking price in 2023, just another indicator of the strength of housing markets.
However, when you look at data from PropTrack, you'll see that the extent of price reductions by sellers (the difference between the asking and sold prices) varies greatly among different capital cities.
Paul Ryan, Senior Economist at PropTrack explained:
"The data suggests vendor discounting is currently most common in Hobart and Brisbane, and least common in Adelaide.
So, what does this tell us?
Analysis of the data shows that overall, the prevalence of vendor discounting appears to follow recent price growth and suggests market conditions remain stronger than prior to the pandemic."
The rate of vendor discounts has decreased in 2023
Even though not all homes have a listed asking price, the ones that do can tell us a lot about how buyers and sellers are dealing with each other.
During the boom of 2020-21, when housing demand went up and prices shot up quickly, we saw fewer homes being sold for less than what sellers asked for.
However as the market turned in 2022, PropTrack noted that more homes were sold at lower prices compared to what sellers initially asked for.
This happened because interest rates went up at their fastest rate ever, and home prices kept falling.
That trend has reversed this year as market conditions – and prices – have improved.
"The share of homes being sold below the asking price has fallen and now sits markedly below the level seen before the pandemic," said Ryan.
The typical discount has also decreased
At the same time as the prevalence of vendor discounts has decreased this year, so has the typical size of the discounts received by buyers.
Ryan said:
"Before the pandemic, the median discount (among those properties sold below the asking price) was around 5% of the asking price.
That reduced to around 4% at the peak of the pandemic but increased markedly in 2022 as interest rates increased and prices fell.
The current rate of typical vendor discounting now sits somewhere between these two figures."
Discounting highlights changing conditions across markets
Vendor discounting also gives an idea of relative market conditions.
PropTrack's data show that Adelaide has recorded the lowest rate of vendor discounting for some time, and was the one region to see only a small increase in discounting in 2022.
This highlights how strong market conditions have been across Adelaide – one of the few regions to continue to record price growth over the past two years.
On the other hand, Hobart went into the pandemic with the lowest rate of vendor discounting, having experienced strong market conditions for several years before the pandemic.
But after recording sharp increases over 2022 and 2023, Hobart now has the highest rate of vendor discounting among the major capitals.
"Comparing across time, almost all markets are recording vendor discount rates significantly below pre-pandemic levels, which points to continued robust general market conditions across the country", said Ryan.
Rate of discounting often follows recent price results
Vendor discounting usually goes along with how home prices have been changing lately.
When we look at how many listings sell for more than the asking price (the opposite of vendor discounting), it's closely related to recent price increases.
This is clear when PropTrack compared the two largest markets of Sydney and Melbourne.
Ryan further commented:
"But vendor discounting tends to reflect price growth recorded a few months ago, rather than signalling the direction of future price growth.
It makes sense that when prices are rising, there is more competition for properties and more sell above their asking prices."
Strong market conditions across the country
Ryan noted that:
"Vendor discounting provides an indicator of market strength and is one of the many measures used to gauge conditions across the country.
The rate and level of discounts currently shows that the property market conditions remain strong relative to prior to the pandemic across the country."
