Prices Continue to Rise due to Low Stock

We’ve noticed something a bit different occurring in the Melbourne and Sydney real estate markets over the last couple of years…

The number of Houses selling has been steadily decreasing, while House Prices continue to rise.

Traditionally, sales volumes tend to move in the same direction as sale prices: When house prices trend upwards, more people choose to list their properties, and the number of sales trend upwards too; When house prices flatten, fewer people list their properties, and the number of sales flatten out too.

This positive relationship between house sale volumes and house sale prices can be seen in the below graphs. For VIC, we’ve used the Glen Eira Area as an example, and for NSW, Willoughby. The green bars show Number of Houses Sold, and the red line shows the Median $ House Price.

Notice how the bars and line tend to move in the same direction – up until 2015, when sales volumes started to decrease. Prices in both Council Areas continue to increase. This is a very interesting development.

How to explain this

So why are sales volumes so unusually low? There are a few reasonable explanations, ranging from global economic uncertainty, to domestic political fragility, and subdued consumer and business confidence.

At a practical level, many potential vendors are reluctant to sell at a time when their purchase options are so limited. Where will they move to? The older generation of downsizers feel this predicament especially – many don’t want to move into an Apartment (where lots of choice exists), and the idea of selling their long-term family home without first buying their future home causes great anxiety.

This understandable determination to list only after selling is creating a self-fulfilling trend… Listings are down because listings are down!

Understanding the implications for buyers and sellers

Professionals at the coalface (agents, analysts, and brokers) will tell you that demand remains strong among homebuyers, investors and foreign purchases. With fewer properties available, competition between buyers for those properties is intense.

Most auctions these days draw a good crowd, and see multiple bidders. Strong, competitive bidding drives up prices, and for every successful purchaser, there are several buyers that miss out. These ‘under-bidders’ are forced to continue their search, and many eventually have to reassess their budgets and/or areas. This, in turn, often leads to higher prices.

The obvious conclusions for sellers… It’s a good time to sell when so few competing properties are on the market. Fix the cracks, paint the walls, stain the deck, and do all the other things required to prepare your house for sale. Then, if you’re determined to buy before you sell, you can act swiftly.

And, for buyers… It’s time to be decisive. Reassess your search parameters (budget, suburb, number of beds and baths, etc.) and commit fully to the purchase process, understanding that now is not the time to be too fussy. It may be time to compromise a bit.

But don’t let frustration at lack of choices lead you to making emotional purchasing decisions. Be smart, and as objective as possible. It might even be worth talking to an experienced buyer’s advocate who can access properties off-market, accurately assess market values, and negotiate effectively.

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