Don't confuse low inventory with a lack of listings

Transient

The September report from the Real Estate Institute showed a fall in sales between August and September this year which contrasts with a seasonal rise. Whilst not citing low listings as the cause, the report certainly spoke to the impact that the low level of listings was having on prices.

In the same week the monthly NZ Property Report published by Realestate.co.nz continues to report low levels of inventory. Both of these reports set the scene for what could be a challenging time for the property market heading into what is traditionally the busiest time of year with what many consider very low levels of available stock.

The key questions is -- Is there sufficient stock of houses to buy?

I think it is very important to look behind the headlines and look at the numbers and the source of the numbers to truly answer the question.

Inventory of unsold houses on the market and number of listings of property on the market sound much the same - however they are as different (albeit in a subtle way) as speed is from velocity (for all those that can recall their physics lessons at school!).

The number of listings on the market is very clear - its actual houses, houses you can see and check out.

Inventory on the other hand as reported through the NZ Property Report is a more complex and advanced measure. It is in its own way a vital measure. It is a measure of the available inventory measured by the current rate-of-sale of property. So to say that the current inventory in NZ represents 30.5 weeks, means that based on the rate of sales in the prior 3 months of June, July and August (1,441 sales a week) it would take (theoretically) 30.5 weeks to sell all of the available stock of listings on the market which at the end of September was 44,063 listings. 

To assist in understanding these two measures and better appreciate the true perspective of the market, have a look at this chart which tracks stock of listings and inventory across the country over the past 5 years.

The red line (tracked on the right hand axis) measures the inventory, whilst the grey bars (tracked on the left hand axis) measures actual stock of listings.

A key takeaway here is that at the height of the property crash the inventory of unsold houses on the market back in 2008/9 reached 60 weeks, today it is half that level at 30 weeks. However at that low point in market back in 2008/9 the actual stock of listings was just over 50,000 whereas today it is just over 40,000. That is the point; inventory has halved but there is still a lot of choice in the market with only 20% fewer listings.

Now I know there will be those who will say that the national figures are not relevant and what matters is how many houses there are in this suburb or that suburb. Those comments are both right and wrong. People do buy houses in an area and there are certainly less available property in certain suburbs than there were 3 years ago - but in someways there are always a limited pool of available properties as properties are not homogenous - we are all looking for that unique combination of features in a certain location. So to say that there is an acute shortage is alarmist.

As for those in Auckland or interested in Auckland here is the chart:

In the Auckland region the inventory at the worst of the property crash the inventory peaked at 60 weeks, today it is hovering below 20 weeks, that's a massive decline - however available stock of listings at the peak was around 15,000 whilst today it is around 9,000. Now that is a significantly lower level of available stock, but to call it a shortage?