08.17.2022 Local News

What Role Are Stock Levels Playing In Sydney’s Property Market?

What Role Are Stock Levels Playing In Sydney’s Property Market?

Most analysis of the property market focuses on demand. But what role does supply play?

The real estate market of today looks quite different from 12 months ago: Sydney’s median property price has now suffered six straight months of decline, interest rates are rising and auction clearance rates are falling.

Most analysis has centred on the role decreased demand has played in the changing property market. But what role is supply playing?

The link between supply and house prices

Property prices essentially operate in a free market, which means they’re set by the laws of supply and demand. Any change on either side of this equation will alter the equilibrium and cause them to rise or fall.

In other words, if demand stays constant but supply decreases (i.e. there are fewer properties for sale) prices will – or should – rise; if supply increases and demand remains the same, prices will fall.

The role of supply in Sydney’s property prices

Until now, supply levels in Sydney’s housing market over 2022 have been reasonably steady. There were 31,540 properties listed for sale across the city in July 2022, compared with 32,165 in July 2021, according to SQM Research.

SQM data also shows that Sydney’s stock levels have stayed reasonably consistent since May 2020 – so that tells us the price increases over 2021 and the price decreases this year have been the result of rising and falling demand.

What’s interesting though is that, during the last declining market – 2018/2019 – there were considerably more properties listed across Sydney than normal. City-wide listings peaked at close to 40,000 in November 2018 and, over those same two months, Sydney property prices recorded their biggest monthly fall in 14 years (1.4%).

Conversely, the last boom market before 2021 (which spanned from 2013 to 2017) was characterised by historically low listings levels. The number of properties for sale in Sydney fell to just 18,968 in June 2015 – and that same quarter Sydney’s median property price rose an incredible 9.8%.

So supply played a major role in helping prices rise and then fall.

Differences between the Sydney and Melbourne markets: a matter of listings?

People have long tried to find a reason why Sydney’s property market should be so much more expensive than Melbourne’s.
After all, Melbourne is almost as big as Sydney and its population has been growing even more rapidly over the past decade. Usually, factors such as lack of public transport and geographic limitations (i.e being hemmed in by the Pacific Ocean and mountains) are cited.

But could it actually be listings – or the supply side of the equation – that hold the key?

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The Victorian capital consistently records more than 35,000 properties for sale each month and breaks 40,000 semi-regularly – most recently in October 2021.

For some reason, people list more often in Melbourne and buyers simply have more choices than here.

Stock levels in Sydney’s eastern suburbs

What we’re noticing right now in Sydney’s eastern suburbs is that many would-be vendors are beginning to hold off on listing their homes and instead waiting to see where the property market and interest rates eventually land.

As we come up to Spring, we’re not necessarily seeing the same flood of listings we’re accustomed to. While there are definitely fewer buyers in the market, they increasingly have fewer homes to choose from.

This lower supply is playing an important role in stabilising prices. The eastern suburbs’ market isn’t what it was in 2021 – that’s for certain. But 2021 was an extraordinary year and it’s not as bad as it is in some parts of the city. In fact, Domain data shows that house prices in Sydney’s eastern suburbs stayed stable over the June quarter when prices in most other parts of Sydney fell, making it still a good time to sell.

There is still the opportunity to secure a great result, although some market segments are performing better than others. Family homes in good locations are continuing to experience high demand. This was apparent in an open home we held last weekend, where no fewer than 37 groups came to view it.

More run-of-the-mill or undifferentiated properties are having a much harder time of it.

And we believe that’s the way it’s likely to remain for this next phase in our property cycle.

Want more?

If you’d like to find out more about the property market in Sydney’s Eastern suburbs, get in touch with our team today.