Could scarcity of homes for sale drive up prices?

Could scarcity of listings be leading to real estate market FOMO again?

Residz Team 3 min read

American psychologist Dr Robert Cialdini is famous for his research on what influences our behaviour.

In his book ‘Influence’ he names 6 Principles of Persuasion, and one is scarcity: The fewer there are of an item, the more valuable we perceive it to be.

“When our freedom to have something is limited, the item becomes less available, and we experience an increased desire for it. However, we rarely recognize that psychological

reactance has caused us to want the item more; all we know is that we want it.”  

We know it as FOMO (fear of missing out) and it drove home buyers to pay extraordinary prices during the property boom in 2021. But could scarcity be affecting the real estate market again in 2023?

SQM Research shows below how the number of listings has trended lower over the past couple of years.

As Aiden Devine wrote recently for Daily Telegraph and, an impending shortage of available housing for sale could wreak havoc on home seeker plans to purchase properties this year.

“Sydney and Melbourne had the biggest annual drops in new listings at 35.3 per cent.”

Vendors are reluctant to sell when properties are staying unsold for longer and their peers are having to make more concessions to buyers in a buyers’ market.

Home sellers switching to becoming landlords

As well, with rents at record high levels, perhaps potential home vendors are choosing to rent out their properties while they wait for the real estate market to bounce back.  

Domain’s December 2022 Rental Report says rents are rising at the fastest annual pace ever seen across the combined capitals and the number of vacant rental properties were at an all-time low for the month of December, fuelling a landlords’ market and presenting an ongoing rental crisis in many parts of the country.

“It is the longest stretch of continuous rental price growth on record as house rents rise for the seventh consecutive quarter and unit rents for the sixth.”

Dwelling approvals down

There’s not going to be a surge in new stock either. Not as many new properties will be built in coming months.

The number of total dwellings approved in November 2022 fell 9.0%, according to the Australian Bureau of Statistics.

It says the number of dwelling approvals fell in New South Wales (-18.4%), Western Australia (-17.5%), Victoria (-12.7%) and Queensland (-5.6%).

Demand side could rise

We’ve just seen the strain on the supply side, what about the demand side?

Certainly, interest rate increases have reduced the borrowing capacity and risk appetite of buyers, and living costs are biting.

But many potential home buyers with steady incomes may adjust their spending, acclimatise to a higher interest rate environment, and jump onto the property ladder anyway.

Many may have to. Australia’s population simply won’t be able to wait for interest rates to fall or houses to become affordable. It needs somewhere to live.  

More households, more visitors

AHURI reports nearly one million new households formed between the 2016 and 2021 Census; an 11.9 % increase (or an average of 197,826 households per year).

As well, people are flocking to Australia.

According to The Guardian, Australia is on track for net migration of more than 300,000 people this year, more than 25% higher than Treasury forecasts.

As we said earlier, rents are unaffordable and rental properties are scarce. Nationally the rental vacancy rate remains at a record low 0.8 per cent.

SQM Research predicts that the rental market strain may not ease until late 2023 at the earliest.

So, renters may bite the bullet and join those who’ve waited out the pandemic to buy a home.

The great house hunt

House hunting could be back on the table for parents with growing families, couples who cashed up in the boom, expats and immigrants, families who’ve split, distressed mortgagees looking for more affordable properties, and first home buyers.

Unless a surge of homes come onto the market as interest rates start to bite, there won’t be enough quality properties to satisfy demand.

In late 2022 the Reserve Bank predicted home prices would fall by 20% to 25% in two years. Perhaps, but is scarcity of supply and pent-up demand going to let it?

Photo by Tierra Mallorca on Unsplash