Key takeaways
There is an increase in buyer demand, and limited inventory is leading to more properties being sold above their initial asking prices.
The volume of properties selling above or below the asking price serves as an indicator of market conditions. Properties selling below the asking price can indicate lower demand and falling prices, while properties selling above the asking price suggest underpriced expectations due to strong market conditions. The share of properties selling below the asking price has been decreasing, indicating a market adjustment after the initial shock of the pandemic.
Market expectations are for further interest rate rises, but the number of properties selling below the asking price is expected to drop, leading to an increase in home prices in the near-term.
In June, national home prices continued their upward trend, marking the sixth consecutive month of increase with a further 0.3% rise, according to PropTrack's latest data.
This positive momentum has brought national home values to a point where they are now only 0.1% below their levels from a year ago.
Consequently, it appears that the real estate market is gaining strength, indicating that the most challenging phase of the downturn is most likely behind us.
Additionally, there is an evident increase in buyer demand and coupled with the limited inventory of properties for sale, more properties are being sold above their initial asking prices compared to the earlier part of the year.
This trend is contributing to the stability and growth of home values.
It is worth noting that when a property sells for a price lower than its initially advertised price, it is known as vendor discounting, which serves as one of several indicators used to assess the overall state of the property market.
According to PropTrack, in June, the share of properties that sold for less than the asking price decreased compared to the start of the year.
There has also been an increase in the share of sales over the asking price and an increase in the share of property sales at the asking price.
If this trend continues, home values will continue to rise.
What can the volume of properties selling above or below the asking price tell us about the market?
Ms Karen Dellow, Senior Audience Analyst at PropTrack, explained:
"If more properties are selling below their asking price, it is a sign that demand is lower, and prices would likely be falling.
Discounting happens when the market begins to soften, and prices begin to fall.
As vendors and agents price properties based on recent sales, there can be an expectation gap between what buyers are seeing in the market and what vendors believe their home is worth. After all, a property is only worth what a buyer is willing to pay.
In contrast, an increase in the share of properties selling above the asking price suggests that vendors' expectations for what their home is worth are actually underpriced because strong conditions and demand drive up prices quicker than expected.
For example, in the lead-up to the pandemic, the share of sales selling below the asking price was high, as the market had been going through a slump."
She further explained:
"The share of properties selling below the asking price was just beginning to decrease when Australia went into lockdown, causing an increase.
But, as the property market adjusted to the initial shock of the pandemic and subsequent lockdowns, properties selling for less than their asking price decreased significantly and reached its lowest level in years."
Current data from PropTrack indicates that the market is again at a turning point, with fewer properties selling for less than the asking price and more selling for the asking price.
In October 2021, more than 70% of sales occurred at or above the listed asking price, indicating strong market conditions.
However, discussions about potential interest rate hikes led to uncertainty among property seekers, resulting in a subdued market.
When the first interest rate increase took place in May 2022, the proportion of properties selling for less than the asking price began to rise.
In the past month, 47.2% of properties were sold below their listed prices.
Although this figure is still relatively high, it is lower than it was six months ago and significantly lower than the peak observed in January 2019, when it reached 69.7%.
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Vendor discounting levels in the capital cities and regional areas
Taking a look at PropTrack's data, we can see that all capital cities, except for Hobart, have seen the share of sales below the asking price decrease since the beginning of the year, with a higher share of properties selling for the asking price or above.
Interestingly, Sydney has experienced a significant increase in the share of sales at the asking price or above, the largest rise of all the capital cities.
But Perth and Brisbane have both also seen an increase in share from January to June.
Ms Dellow commented:
"The regional areas are taking longer to rebound. Queensland and Western Australia have experienced increased sales at or above the asking price; however, the other states are taking longer to improve.
Metro areas have been performing stronger, with higher rates of sales above the asking price.
Perth home prices have defied the downturn, and home values have still to reach a peak, despite nearly all other cities reaching their highest and lowest points in 2022."
Regions with the most sales above the asking price
Looking at data from PropTrack, five of the six SA4 regions that make up Perth Metro have the highest percentage of sales going for more than the asking price.
But these attractive property prices in Western Australia do not mean that investors should jump into the Perth property market – there are better opportunities in other parts of Australia.
The problem is the Western Australian economy is too dependent on one industry – the mining industry and much of this is dependent on China, and this has a direct knock-on effect on Western Australian house prices.
The other five regions in the top 10 are in Queensland and South Australia, mostly the Brisbane SA4 areas.
Regions with the most sales below the asking price
While capital cities are experiencing a surge in demand, resulting in increased prices, the situation unfolds differently in regional areas.
The areas that witnessed significant growth during the pandemic are now showing signs of market stabilization.
This trend is particularly noticeable in certain "lifestyle" regions like Richmond-Tweed, which includes popular destinations such as Byron Bay.
The froth or excessive enthusiasm that characterized these areas is gradually subsiding.
Among the top ten regional areas with the highest percentage of sales below the listed price, six of them are located in New South Wales (NSW).
These areas experienced substantial price increases, but now we are observing indications of a slowdown in the regional resurgence that was witnessed during the pandemic, particularly in certain regions across the country.
What does this mean for the property market in the coming months?
Ms Dellow said:
"Despite fewer properties for sale during the winter months, auction clearance rates are still strong, and sales volumes are higher than in the latter part of 2022.
There may be further interest rate rises, but after 12 increases since May last year, the end is likely in sight. Market expectations are for a further one to two interest rate increases.
With this combination of high demand and low listing volumes, the number of properties selling for less than the asking price will drop further, driving up home prices in the near-term."
