Stock on property market at close to peak levels

Based on current rates of sale, as well as total number of homes being advertised for sale, RP Data results shows that there is 7.4 months of effective housing supply available. Across all capital cities, the effective supply of properties is currently recorded at 5.8 months. As a comparison, 12 months ago there was 4.5 months supply across all capital cities, while nationally the rate was 5.6 months.

Similarly, an estimate of sales volumes shows they are currently much the same as they were 12 months ago. This result highlights that supply levels are now being driven higher due to the amount of stock available for sale more so than a significant decline in sales activity.

Of all the capital cities, Canberra currently holds the record for the city with the lowest current housing supply at 3.6 months while at the other end of the scale, Brisbane has the greatest effective supply recorded at 8.8 months. The state-by-state results mirror the capital city results with the Australian Capital Territory having the least months of supply and Queensland having the greatest.

Across each capital city and state except for Perth and Western Australia, the months of supply figure is currently higher than it was at the same time last year. This is indicative of deteriorating selling conditions.

This is particularly true when you consider that on an annual basis property values have fallen by -3.4% over the year to September 2011, compared to 8.6% annual growth in home values at the same time in 2010.

The fact that Perth and Western Australia's effective supply levels are now lower than they were at this time last year suggests that the market may be starting to recover after underperforming for much of the past five years.

In all capital cities apart from Melbourne and Adelaide, the current monthly supply figure is below the peak which suggests that in other states and capital cities, effective supply levels may have peaked.

Melbourne recorded strong capital gains over recent years. RP Data research analysts expect that the effective housing supply will increase further in the coming months in the city as market conditions continue to slow following an exceptional rate of value growth. In all other capital cities except for Canberra, the current months of supply is more than one month lower than the peak.

Since the beginning of 2007, the effective supply level across the capital city markets averaged 3.9 months, reaching a high point of 6.5 months in January of this year. The months of supply figure reached a low point at just 2.3 months during March 2007.

Across the nation, effective supply levels have been recorded at a higher average of 4.9 months and peaked at 8.4 months in January of this year. Nationally, the months of supply figure was recorded as low as 2.5 months in March 2007.

These results suggest that current effective supply levels are well above average across the combined capital cities and at a national level.

A spike in recent listings data acquired by RP Data suggests that available stock is at near-to record levels and is being driven by mounting levels of re-listings. This result is indicative of slower market conditions and longer than normal selling periods.

RP Data found that new listings are currently -18.6% lower now than they were at the same time last year, whereas total listings are 26.4% higher. Although nationally the effective supply is recorded at 7.4 months, across various capital cities the results are quite different. The differentiation across markets highlights that the national results are not necessarily reflective of individual capital city markets.

With the latest reduction in interest rates, we will be closely monitoring the impact this has on market conditions. To this end, I would expect to see some improvement in sales activity. However, in stating this, I don't expect the anticipated improvement in transaction activity will be accompanied by growth in property values.

My reasoning behind this is because while housing credit growth remains flat, consumers show low levels of optimism when it comes to property purchases and retail trade continues to be slow, at a macro level the property market is likely to be subdued until we see a significant reduction in the number of homes available for sale.

How supply is measured

There are two ways to measure supply in the residential market place: "core supply" which is the difference between base level demand (ie. population growth) and base level supply (ie. new dwelling construction) and "effective supply" which measures the amount of properties that are available for sale in the market place. Effective supply can be expressed as the number of months it would take to sell.

Cameron Kusher is senior research analyst at RP Data.

This article originally appeared on SmartCompany.