Why There Is Never A Market Equilibrium

Tuesday, 20th August 2018

By Victor Kumar
When it comes to property markets, there is usually never a perfect equilibrium.
What I mean is there is usually an oversupply or undersupply stock situation, such as too many new units being built.
In the finance sector, the same goes, with lending either constricted or overflowing.
Both of these factors have an impact on buyer and investor sentiment, but also the sentiment of vendors and selling agents, too.
Plus, there are seasonal factors to consider such as winter, which is usually a period of slower market conditions.
Of course, this is purely psychological because the time of year should have no impact on market activity.
Also, there is the tax season when investors in particular are waiting on insights from their accountants to better understand their numbers, and whether they can afford to buy another property for their portfolio.
Changing times
So, it stands to reason, that July is usually a lower listings month because it’s the dead of winter, and not many people want to buy or sell.
However, new SQM Research has highlighted that the number of listings, while still seasonally low, have reduced significantly from the same period last year in some locations.
In fact, according to the research, year-on-year Sydney’s listings declined by 10.5%, Darwin declined by 4.8% and Perth by 2.6%.
One of the reasons why this could be happening is that some vendors still have their heads in the property clouds, and aren’t prepared to list their properties until prices mystically go back to the levels that they were a few years ago.
Also, because of lower interest rates, more people are able to hold on to their properties, rather than selling because of cash flow problems.
Going back to my original statement, though, currently there is an imbalance of buyers in my opinion.
That’s because many were stuck on the sidelines as they couldn’t secure finance until the serviceability calculations were reduced recently.
Some of them now have the “fever” and are just buying any old thing, while the smart ones are being strategic with their property purchases.
The first state of play is where bidding wars take place, which is starting to happen more and more at auctions.
Another sign of the market changing can be evidenced through my regular attendance at housing commission auctions in a suburb of Sydney.
Over the past four months, attendance has gone from being half-full to standing room only.
Plus, the sale prices of those properties have skyrocketed from about $388,000 to $476,000 in the space of a few short months.
Another sign of market change is that the volume of listings with no price guides or advertised as “offers over” are also on the rise, because sellers and agents recognise the equilibrium is starting to swing back in their favour.
However, it’s not there yet.
In fact, I believe we are now in a unique position that will see, by years’ end, the pendulum swing significantly back towards sellers.
Many fundamentals are pointing towards stronger market conditions next year due to higher government spending on infrastructure, lower interest rates as well as incentives such as the first home buyer deposit scheme, which are all aimed at stimulating our economy.
That’s why the equilibrium is still on the side of buyers, even though listings aren’t exactly flush.
Within six months, though, the number of buyers will have supercharged, and they will be competing against each other to purchase property – regardless of its quality.
In essence, the market is currently in a sweet spot between market feast and famine.
The smartest investors won’t delay before making their move.