Why are Stock Levels So Low?

One of the key property themes we keep hearing about is that there are no good properties for sale.

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While COVID has played a role in this, it’s not the main reason it’s really difficult to find a great property in a place like Sydney. In fact, low stock levels are something that has been happening over a long period of time and it’s only now that the issue has really been highlighted.

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Low inventory levels have been an issue for Sydney for many years and we can see this clearly when we look at the latest data from CoreLogic which shows us the total listings across the country over the past five years.

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As we can see, listings are as low as they’ve ever been, but notably, this is a trend that has been happening each year for at least the past five years and longer in places like Sydney and Melbourne.

Source: CoreLogic

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While COVID has made people change their behaviours in the short term and forced many to stay put instead of move, there are other longer-term factors at play.

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In fact, only ten years ago, people used to hold onto a property for roughly 8-9 years. That’s now changed to being around 13.5 years. That means every time a property is purchased today, the likelihood of that property being sold in the next 13.5 years is actually quite low, because over time that number is going to continue to trend higher.

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So what’s causing this dramatic change in the length of time people choose to stay in their property?

Transaction Costs

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In Sydney and the East Coast of Australia, property prices have been steadily rising for a decade now. That has seen the median dwelling price in Sydney continue to climb to where it currently sits at $994,298 according to CoreLogic. Even more importantly, the median house price in Sydney is now at $1,224,613 and that’s across the entire Greater Sydney Region.

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If you’re trying to buy a home in the Eastern Suburbs of Sydney you’re very likely going to need to pay double or triple that price or more.

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When you start to factor in these high property prices and the stamp duty and selling costs that you need pay to move homes as a result, it is clearly forcing many people to rethink that option.

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If you’re going to be paying, 2-3% to sell your home and then 5% for stamp duty and other fees you can quickly end up spending $300-$500,000 or even up to $1 million on transaction costs, simply to move houses.

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This has now clearly become a huge barrier for people looking to upgrade and even forcing retirees who need something smaller, to just stay where they are.

Renovating

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With the incredibly high cost involved in buying and selling property in Australia, many people are now looking at the option of simply upgrading their own homes.

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This can mean a renovation to expand or even adding another story and doing large structural works. To put it in context, if you just needed another bedroom to accommodate a growing family, it might be a far cheaper proposition to renovate, than pay the huge transaction costs and go through the hassles of moving.

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Will the Trend Continue?

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For the time being, we should expect to see the trend of people staying in their home longer continue. However, there is growing momentum from the NSW Government to reform stamp duty in the years ahead and that will potentially mean giving homebuyers the option of paying a land tax.

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While that is a step in the right direction, paying an annual land tax still puts potential upgraders and downsizers in the tricky position of being forced to pay another form of tax, when they have the option of staying where they are and renovating.

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In the short-term, lockdowns will likely keep a cap on stock levels, but it’s important to understand that high-quality homes in good locations are not easy to find and also why they are so valuable.

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