SUPPLY V DEMAND

May 29, 2018
Michael Matusik

So much is written these days about the housing market that it makes my head spin.  And it’s so easy to get distracted by the distortion.  After 30 years of doing this stuff I can tell you that it is really easy to understand what is happening when it comes to dwelling prices. 

Whilst dwelling prices are influenced by many variables – including interest rates; liquidity; employment; wages; confidence and government policy etc. – what matters the most is simply the interplay between demand and supply.

Here I am talking about sale volumes versus the number of dwellings listed for sale.

It really shouldn’t be any more complicated than that.

Three tables

This missive I have included three tables.

1. The first table outlines sale volumes over the last two years. You can see that sale volumes are falling.

2. The second table shows that listings are rising.

3. And the third table shows that supply in months (for most locations) has increased.

Table 1
Dwelling sales 

Capital city Sales
2017 2018 Change
Sydney 92,610 74,689 -19%
Melbourne 97,845 82,811 -15%
Brisbane 54,553 45,763 -16%
Adelaide 24,078 22,403 -7%
Perth 32,624 30,441 -7%
Canberra 8,081 7,228 -11%
Darwin 2,032 1,774 -13%
Hobart 5,773 5,141 -11%
Total 317,596 270,250 -15%

Table 2
Dwellings listed for sale

Capital city Listed for sale
2017 2018 Change
Sydney 24,735 33,364 35%
Melbourne 30,434 32,378 6%
Brisbane 28,082 30,419 8%
Adelaide 15,579 16,235 4%
Perth 25,397 26,548 5%
Canberra 3,472 3,895 12%
Darwin 2,010 2,089 4%
Hobart 3,103 2,270 -27%
Total 132,812 147,198 11%

Table 3
Supply in months

Capital city Supply in months
2017 2018 Change
Sydney 3.2 5.4 67%
Melbourne 3.7 4.7 26%
Brisbane 6.2 8.0 29%
Adelaide 7.8 8.7 12%
Perth 9.3 10.5 12%
Canberra 5.2 6.5 25%
Darwin 11.9 14.1 19%
Hobart 6.5 5.3 -18%
Total 5.0 6.5 30%

Supply in months

Here all I do is count the amount of stock currently for sale compared against the number of sales made over the last twelve months.  I express this as the ‘supply in months’.

In short, an area with, say, 100 properties listed for sale, but only achieving 20 sales per annum, is in a slump.  If we exchange the numbers, then it’s thriving.

As one would expect, when supply is tight (and tightening), dwelling prices lift.  The rate of price escalation can be rapid if sales are increasing whilst stock for sale is in decline.

The opposite applies, almost always, when supply is high (and rising) in relation to demand.  More so when demand (sale volumes) are declining.

This helps explain why dwelling values, on average, across most capitals are now showing less growth; are actually falling in some locations and still rising in others.

Postscript

I would like to thank both SQM Research and Price Finder as I used their statistics in this Missive.  Sale volumes in table 1 are for years ending March 2017 and 2018 and the for sale listings in table 2 are as at April 2017 and 2018.

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Until next time,

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Michael Matusik

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