A dearth of stock
Incredible data out from SQM Research which shows that Sydney stock on market has declined all the way back to under 20,000.
This is a remarkable statistic taking the stock on market figure all the way down to the levels seen over Christmas - a time of year when very few people list property for sale.
Over the past year Sydney's stock on market has declined by a punishing 13.7 per cent.
The market has also tightened noticeably in Melbourne, down 18.2 per cent from an elevated level of stock a year ago, and in Hobart, where stock on market had declined by 8.4 per cent over the year.
On the other hand stock is piling up on the market in the resources-influenced Perth (+18.9 per cent) and, alarmingly so in Darwin (+42.7 per cent).
Sydney and the supply response?
Clearly there is a huge amount of pressure on the Sydney market with such a dearth of quality stock listed for sale.
Auction clearance rates at the present time are commensurate with a market set to rise at a stunning 15 to 20 per cent annualised pace.
So what about the supply response? Typically higher prices should see a greater flow of dwellings on to the market.
Even without looking at the data I can tell you that in inner Sydney the rental market is very tight with most decent stock renting quickly.
But I suspect that we might see some temporary spikes in vacancy rates in the inner south, and in hubs to the north, such as Chatswood.
I haven't travelled to the west for a while but I suspect that Parramatta may be experiencing a similar dynamic, and in all likelihood suburbs such as Homebush, Rhodes and Olympic Park.
Certainly there is a very high number of investors in the market at the present time, which is eventually likely to see the supply of stock made available for rent getting ahead of the demand for renting in some locations.
This should put downward pressure on rents as a growing number of landlords compete over the same number of tenants.
While vacancy rates data are not infallible, they do tend to be a useful market indicator.
Recall that a "comfortable range" for vacancy rates tends to be in the range of 2.5 per cent to 3.5 per cent, with an oversupplied market typically seeing vacancy rates moving into the 4 per cent plus level.
By way of an example, the tail end of the Sydney property boom in Q1 2004 saw vacancy rates on a city-wide basis of 4.4 per cent and 5.3 per cent in the outer.
Below are a couple of charts of vacancy rates in inner Sydney today.
As you can see the prestige suburbs such as Darling Point, Vaucluse, Woollahra and Dover Heights have vacancy rates tracking at around ~2.5 per cent, which is fairly typical for the thinner "top end" of the market.
There are also some moderate spikes in vacancies in inner south suburbs such as Alexandria (2.2 per cent) and Mascot (2.5 per cent).
However, generally speaking inner Sydney's rental markets are tight, and certainly a long way from being oversupplied.
Looking to the north of the famous old coat hanger reveals a similar story.
There are some construction hubs where vacancy rates have spiked a little such as Chatswood (2.1 per cent), and if you saunter up towards the national park a number of other suburbs have considerably easier rental markets.
Overall, however, vacancy rates generally remain tight, particularly in easily commutable suburbs such as Wollstonecraft, Crows Nest and St. Leonards (1.3 per cent), Artarmon (1.1 per cent) and Lane Cove (1.2 per cent).
SQM Research reports that asking prices for Sydney houses rose by 1.4 per cent in April and for units by a thumping 2.7 per cent.
Migration and construction
The Building Approvals data this week showed that Sydney has approved nearly 27,000 apartments for construction over the past 12 months (in addition to 13,776 houses).
However, even if 25,000 of these units can be constructed, it needs to be remembered that Greater Sydney's rampant population growth is now tracking somewhere close to 90,000 per annum.
Sydney has the strongest economy in the nation and as a consequence interstate migration from New South Wales has fallen to its lowest level on record.
Long term challenges
It was recently forecast that Australia would need an additional 4.3 million homes in the 25 years to 2036, some 820,000 of them in Greater Sydney - an average of nearly 33,000 per annum.
These figures strongly suggest that there will always be a shortage of certain property types, even if we do somehow manage to shoehorn in hundreds of thousand of shoebox high rise apartments.
SQM's Asking Prices Index reveals that the biggest increase in asking prices over the past 3 years has been for 2 bedroom apartments in Sydney (+30.5 per cent), followed by 3 bedroom houses (+29.5 per cent),
Given that vacancy rates in many inner suburbs are still at 1.5 per cent or well below, this is hardly a surprise.
Retail trade data due out later this morning, so stick around for that...