How Will Listing Volumes Impact Price Growth?
When it comes to property, it's hard to avoid the theme that we have been running with over the past few weeks simply because it is the major talking piece in the media at present.
At present, all the signs are pointing to a sharp rise in listing numbers as we enter spring, with the discussion point being how this increase in listings will impact prices.
This week's lead story comes from a Proptrack report that focuses on this exact topic. The full report and its findings are below.
We have also included last month's Herron Todd White valuers monthly report for the completed month of August.
The Herron Todd White report focuses on land values on the Gold Coast as well as the Herron Todd White property clock which again, describes the Gold Coast property market as being in a declining market.
The Proptrack article with the headline "Property listings rebound could dampen price growth this spring" is our first article.
Please see below
Property listings rebound could dampen price growth this spring
Analysis shows fewer new listings are associated with higher home price growth, after accounting for other factors. In particular, recent new listings – those 1-2 months ago – have the highest correlation with home price growth.
But after months of sluggish listings volumes, more homes are hitting the market ahead of the spring selling season, which could weigh on price growth in the months ahead.
So, how much impact does listing volumes have on price growth?
Correlations at the local region level suggest the lower rate of new listings observed over the first half of 2023 is equivalent to around a quarter of the price growth observed in 2023.
This points to strong demand also being a key driver of price growth over the year.
Home price growth has surprised many in 2023
The property market has displayed a remarkable turnaround in 2023.
Home prices fell persistently over 2022, falling 4.1% from April to December, during the sharpest episode of interest rate increases ever implemented by the RBA.
But 2023 has seen national home prices increase each month, up 2.8% so far this year, despite continued increases in interest rates.
One contributing factor put forward for the turnaround in price growth has been a lower supply of new listings. This has focused buyer demand on those available homes, with this competition countering the effects of higher interest rates.
The flow of new listings over the first half of 2023 was around 15% below the level seen over the same period in 2022, which represents a significant decrease. By contrast, the total number of homes on the market has mostly drifted upward as homes take longer to sell compared to the strong market conditions in 2021.
While measures of buyer demand have moderated from the strong levels recorded in 2021, they remain well above pre-pandemic levels.
Analysis confirms lower new listings is associated with higher home price growth
To investigate the relationship between new listings and home price growth, I add new listings to a simple model of home price growth across regions.[1]
This model investigates the relationship between home price growth and new listings by removing broad national trends – since things like lower interest rates likely boost both home prices and new listings by unlocking higher borrowing capacities. This approach tests if, when new listings in a region are lower than what would be expected from the national trend, that is associated with higher-than-expected subsequent home price growth.
The results suggest lower new listings are associated with higher home price growth one to two months later. The largest correlation is seen two months following a fall in new listings.
These effects are equivalent to around a quarter of home price growth recorded in 2023
These results are not strictly comparable to national home price growth. This is because they only estimate average local correlations between unexpectedly low new listings and home price growth.
But the magnitudes of the relationship, when accumulated, suggest 15% lower new listings seen over 2023 is equivalent to around a quarter of the 0.39% average monthly home price growth observed so far this year.
This is indicative that lower new listings has supported higher price growth this year, but is not responsible for all of it. It points to strong demand, as well as lower new supply being responsible for home price growth this year.
Stronger listings could dampen home price growth this spring selling season
There have been some tentative signs that sellers are responding to continued strong buyer demand and higher prices by bringing more listings to market.
This analysis suggests that a stronger flow of listings could weigh on home price growth later this year as the market gears up for the spring selling season.
And importantly, it shows the impact on prices is likely to be felt quite quickly after any new listings are brought to market – within one to two months.
Please see below the HTW Valuers Property Clock for August 2023.
