Oversupply of Homes see New Home Sales Plunge

According to figures released from the Housing Industry of Australia, sales of new homes are down 8 percent for the month of July. This follows a similar size fall in June of 8.7 percent and has the housing industry begging the government for more stimulus.

But while the housing lobby tells us we are simply not building enough housing and any shortage will put a floor under prices, just the opposite is happening.

SQM research shows Melbourne now has 45,700 homes on the market, waiting patiently for a buyer as the number of days on the market trend upwards. It predicts stock levels could rise to 60,000 as Spring comes around and investors try to exit the market with little possibility of future capital gains and a high probability of falls. This has seen house prices in Melbourne fall 4.4 percent since December or $800 a week on the median priced property. But with so many houses on the market to choose from, why do you need to build?

On Friday, RBA boss, Glenn Stevens told the Standing Committee on Economics, “How is it that a country of our size—we are not short of land—cannot add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do? I cannot get past that basic question.”

Maybe there was never a shortage to begin with? How can a market go from a chronic shortage to oversupply so quickly, and during a period where the number of homes being built its at the lowest level in years?

Any marketing executive will tell you a marketing campaign needs a ‘call to action’, something that will urge the listener to take immediate action. A “shortage of houses” and “we are not making anymore land” could be seen as perfect calls to action for the property industry, urging Australians to get onto the property band wagon at any cost or otherwise “miss out forever”.

Others believe housing has been used as a traded commodity. ANZ’s Australian Chief, Phil Chronican says housing should be “a place to live in, sleep, eat and raise your family” and not a speculative investment vehicle. It’s quite possible houses were brought up as trading stock (or holiday homes) and left empty while large capital gains were being made. Now the market is falling, this excess trading stock comes back on the market – as a place to live in, sleep, eat and raise your family.

What ever the reason, one thing is certain. Most other western countries had housing shortages, and when they turned quickly to oversupply, their bubbles collapse. It looks like we are following in their footsteps.

» New home sales slide 8 per cent – Housing Industry Association – News Limited, 29th August 2011.
» House prices sliding in Melbourne’s suburbs – The Herald Sun, 29th August 2011.
» Sharp fall in new home sales – ABC News, August 29th 2011.