A number of drivers are affecting property prices, and these will continue to do so as we enter the first half of 2018. In part 1 of our analysis of residential property drivers, we identify some significant supply and demand drivers. We complete this instalment with a focus on supply side drivers.
Property watchers often ask – what’s driving the residential property market? The answer is always a range of factors, but different factors in different places. The residential property market is made up of many individual – and idiosyncratic – markets.
According to early-December data from property research firm CoreLogic, prices across Australia’s five mainland state capitals had grown at 5% over the last 12 months – less than half the level of annual price growth seen in the first half of 2017.
Australian house price growth has slowed sharply in recent months, led by falls in Sydney, the nation’s largest and most expensive housing market.
Like any market, supply and demand play a major role. On the supply side, factors include the level of new housing construction and how much stock is actually available for sale at any given time. On the demand side of things, the major influences are the rate of population growth, job creation levels, growth in household incomes, the extent of investor demand, prevailing interest rates and access to credit.
The reality is that each capital city and region in Australia is its own unique housing market, which is influenced by local demographic and economic trends as well as supply factors.
Supply is not simply new dwellings. For many homebuyers, it refers to stock on the market in the areas where they want to buy. Depending on the area, supply is very likely to be constrained. According to CoreLogic, over the 12 months to September 2017, just 5% of the national housing stock transacted; the lowest proportion of stock-turnover since April 2012 when it was at an historic low of 4.9%.
Over the nine years of data available, CoreLogic says an average of 5.5% of the national housing stock transacts in a given year. If we focus only on the combined state capital cities, a record-low 4.7% of housing stock transacted over the past year.
Looking at the supply side, it is easy to conclude that there is still more growth in these capital city markets, particularly in Sydney and Melbourne. This is too simplistic. Part two of this news item considers the demand side factors affecting the market in 2018. We’ll pick that up in the new year.
Until then, enjoy the festive season, stay safe, and prepare for a year of opportunity in the property market.