Analysis shows fewer new listings are associated with higher home price growth, after accounting for other factors. In particular, recent new listings – those 1-2 months ago – have the highest correlation with home price growth.
But after months of sluggish listings volumes, more homes are hitting the market ahead of the spring selling season, which could weigh on price growth in the months ahead.
So, how much impact does listing volumes have on price growth?
Correlations at the local region level suggest the lower rate of new listings observed over the first half of 2023 is equivalent to around a quarter of the price growth observed in 2023.
This points to strong demand also being a key driver of price growth over the year.
The property market has displayed a remarkable turnaround in 2023.
Home prices fell persistently over 2022, falling 4.1% from April to December, during the sharpest episode of interest rate increases ever implemented by the RBA.
But 2023 has seen national home prices increase each month, up 2.8% so far this year, despite continued increases in interest rates.
One contributing factor put forward for the turnaround in price growth has been a lower supply of new listings. This has focused buyer demand on those available homes, with this competition countering the effects of higher interest rates.
The flow of new listings over the first half of 2023 was around 15% below the level seen over the same period in 2022, which represents a significant decrease. By contrast, the total number of homes on the market has mostly drifted upward as homes take longer to sell compared to the strong market conditions in 2021.
While measures of buyer demand have moderated from the strong levels recorded in 2021, they remain well above pre-pandemic levels.
To investigate the relationship between new listings and home price growth, I add new listings to a simple model of home price growth across regions.[1]
This model investigates the relationship between home price growth and new listings by removing broad national trends – since things like lower interest rates likely boost both home prices and new listings by unlocking higher borrowing capacities. This approach tests if, when new listings in a region are lower than what would be expected from the national trend, that is associated with higher-than-expected subsequent home price growth.
The results suggest lower new listings are associated with higher home price growth one to two months later. The largest correlation is seen two months following a fall in new listings.
These results are not strictly comparable to national home price growth. This is because they only estimate average local correlations between unexpectedly low new listings and home price growth.
But the magnitudes of the relationship, when accumulated, suggest 15% lower new listings seen over 2023 is equivalent to around a quarter of the 0.39% average monthly home price growth observed so far this year.
This is indicative that lower new listings has supported higher price growth this year, but is not responsible for all of it. It points to strong demand, as well as lower new supply being responsible for home price growth this year.
There have been some tentative signs that sellers are responding to continued strong buyer demand and higher prices by bringing more listings to market.
This analysis suggests that a stronger flow of listings could weigh on home price growth later this year as the market gears up for the spring selling season.
And importantly, it shows the impact on prices is likely to be felt quite quickly after any new listings are brought to market – within one to two months.
[1] The model is dynamic AR(3) panel of monthly home price growth (combined houses and units) in each ABS Statistical Area level 4 region. Month fixed-effects are added to control for common factors affecting all regions. The charted coefficients are lags of new listings (log transformed).
