We all love a good mystery, but don’t usually expect to find one lurking in our property markets.
What is the mystery all about?
The riddle is about the number of listings, or rather the lack of them in our largest property markets.
Listings are properties that are for sale, and when buyer demand falls, as has been the case since the end of the Sydney and Melbourne housing booms, listings tend to rise because more owners are trying to sell their properties but fewer properties are being sold.
The laws of supply and demand dictate that prices decline when demand falls and supply rises, but here we have an enigma that is befuddling property market analysts, because as the graph shows, the number of new house and unit listings has been falling in both Sydney and Melbourne since the middle of 2017.
While fewer people are buying property, the number who are trying to sell is falling as well.
The only possible explanation for this conundrum is that potential sellers believe that the housing market is about to turn around.
Owners appear to be waiting for some signs that the market has passed its low point and that buyer demand is about to rise.
These indicators might be a rise in auction clearance rates, an increase in sales, interest rate cuts, rising yields falling vacancy rates, growth in housing finance approvals or even an actual rise in median sale prices.
But what do you suppose will happen if some of these signs occur and they encourage more owners to try and sell?
The number of properties listed for sale will start to rise, and the recovery could be short lived – which is what economists call a dead cat bounce.
This is created when potential sellers hold off because they think that prices have hit the bottom and the market is about to recover.
The fall in supply causes a slight rise in prices to take place.
The bounce quickly ends when owners realise that the market is going to get worse after all, and they decide it’s time to cut their losses.
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Listings then rise as they try to get out before prices fall further.
Once this rise in supply starts it often escalates, because more and more owners decide to try and sell before conditions deteriorate any more.
On the other hand, potential buyers will do the opposite and wait for prices to fall further before deciding to buy.
Luckily, three-quarters of houses are owned or being paid off by owner-occupiers and are more or less crash proof, because they are held for long periods of time.
First home buyers typically hold their homes for at least four years, and then only sell to upgrade.
Existing home owners stay put much longer while they raise their families in family homes.
This is the reason that property, especially houses, offer such long-term stability to investors – most of the owners are playing the long game on our behalf.
Rent demand, rental yields and rental vacancy rates mean nothing to these households, who have no incentive to sell their homes just because prices are rising or falling.
The property is their home, and when it’s time to upgrade to a bigger house or a better location, any movement that has occurred in the sale price of their current property will be reflected in the buy price of their new dwelling.
The missing listings mystery is warning us not to except a boom anytime soon, in fact, I predict that median housing prices in many locations may keep falling for some time.
The outcomes for property owners, sellers and buyers will, however, be very different.
Investors in off the plan units are likely to find that their investments will be worth less than they expected, and that their new properties will be harder to sell while listings keep rising.
On the other hand, aspiring first home buyers will gain the benefit of lower asking prices, and existing home owners wishing to move won’t experience any effect either way.
It may take longer to sell their current home with more listings on the market, but they will also have more choices and bargaining power for their next purchase.