House prices in Sydney are rising once again and while demand is strong, one of the other important factors driving values higher is the low stock levels that we’re currently seeing.
Stock levels across Sydney continue to sit at levels that we have not seen in some time and if you’ve tried buying a house recently, you’d have seen first hand that your choices are very limited. This lack of listings is causing competition among buyers and driving prices higher.
Lower listing levels is something that has been occurring over a long period of time and while COVID exacerbated the problem, this is a trend that has been building. In 2019, the average length of time Australian’s held onto their house was 11.3 years. This is an increase of 3.8 years, compared to 2009. In Sydney, it’s even longer, at 12.4 years.
What are the reasons behind the low levels of stock currently on the market and why are people staying in their homes longer than ever before?
In Australia, the cost to buy and sell property is incredibly high, with the most significant cost generally being stamp duty. Stamp duty is a tax that is paid based on the purchase price of the property and in a place like Sydney that regularly sees properties sell in the million’s of dollars, this is a high cost.
Stamp duty clearly disincentivises property owners from moving or changing homes even if their circumstances might warrant it.
A clear example is a retired couple who wants to downgrade from their large family home but is disincentivised to do so because of the high costs involved in selling their current property and buying another.
In recent times, we have seen that the NSW Government is looking at implementing stamp duty reform in favour of a land tax. However, there are still significant costs involved under the new system.
Because of these barriers that exist, it’s likely that areas of the market that are already in short supply, such as larger family homes, are going to stay that way in the future. If this segment of the market can’t afford to or isn’t prepared to pay the high costs involved in moving, this impacts the level of stock on the market.
Rise of Renovating
One of the other impacts that we’ve seen from the high costs associated with buying and selling, is that owners are far more likely to stay where they are and invest a similar amount of money into renovating their own property.
We’ve also seen a number of Government incentives, such as the Building Bonus, which encouraged homeowners to take on larger scale renovations and that has likely lead to many people not selling.
Selling Off Market
COVID has had a number of impacts on the property market and it was certainly one of the key drivers behind vendors choosing to sell off-market. Selling off-market occurs when a property is never listed on one of the major real estate portals and is generally done through the agent or even directly with the homeowner.
In the last 12 months, one-third of all sales have been off-market and this number is expected to continue to rise.
Initially, the move towards selling properties off-market came about when vendors wanted to sell, but there was a large degree of uncertainty still in the market. Vendors didn’t want to pay the high costs associated with listing their properties at a time when they were unsure of what might happen.
Now that the market has started to become very strong, vendors are also recognising that they can still attract a lot of interest in their property by selling off-market, without the high costs and hassles of listing it on a real estate portal.
What this is doing is continuing to keep listings very low and it adds to the scarcity that buyers are seeing when they start looking for a property to purchase.
When COVID first struck, it was a situation that no one had seen before. In early 2020, there was a dramatic fall in listings and transactions ground to a halt.
Since those early-stage lockdowns, the broader markets have certainly bounced back strongly, however, many vendors have chosen not to sell. With uncertainty still present, many people are simply choosing to sit on their hands and ride out the storm.
Even though it is clear that the worst-case scenarios that we heard early on are not going to happen, many vendors remain cautious.
One of the other big trends that has lead to a housing shortage not only in Sydney but across the country, has been the return of tens of thousands of expats.
With lockdowns being far worse abroad than what we saw in Australia, many Australian’s living overseas decided the time was right to come home. This lead a number of cities to see a sharp drop in rental vacancies and strong demand in the upper end of the market in cities like Sydney.
At this stage, expats are returning, and few people are leaving. While that dynamic remains in place, we will likely see upward pressure on property prices and very tight rental markets. This also keeps stock levels low and will do so until the international borders reopen.