Over the past year, I have written extensively on the economy-wide implications of Australia’s slowing housing market including, amongst other things, worsening government finances, slowing retail sales, and lower jobs growth.
On Friday, RP Data posted an interesting blog about the pain being felt by the real estate industry from falling transaction volumes and lower house prices:
The real estate industry is doing it tough. Transaction volumes last year were about 13% lower than 2010, 26% lower than 2009 and 33% lower than the recent highs of 2007. A slightly larger decrease applies to real estate agent commissions, due to the fact that agents are generally paid based on percentage of the sale price; falls in home values have compounded the pain already caused by slow market conditions.
Based on the total value of sales in 2011, which were down 18.3% compared with 2010; agent commissions are likely to be down about the same amount.
At the same time, according to the latest IBISWorld Real Estate Industry report, the number of people employed in the industry has fallen by around 1,800 over the past year after rising by 940 employees in 2010/11. The reduced number of agents suggests the commission pie needs to be cut into fewer slices, which is likely to have eased the income fall on a per agent basis. In fact, the report suggests that income per employee in the real estate industry hasn’t change a great deal over the past four years, remaining around $59,000 since 2008 after generally trending down since 2002.
Advertisement
Lower housing transaction volumes are the main culprit in the overall squeeze on real estate agents’ commissions. As shown by the below chart, housing transfers in Western Australia, Queensland and Victoria are well below average levels, whereas New South Wales’ transfers are at average levels, thanks in part to the recent surge in activity as first home buyers rushed to beat the 31 December expiry of stamp duty concessions:
The overall lower transaction volumes, combined with falling home prices, has meant that the total value of housing sales are at the lowest level in at least 11 years in inflation-adjusted terms:
Advertisement
And the total value of home sales in 2011 were -5% below the 11-year average in nominal terms, but a whopping -17% below the average in real (inflation-adjusted) terms:
Advertisement
According to the Australian Bureau of Statistics (ABS), property and business services – which includes the real estate industry – is a major employer in Australia, employing nearly 1.5 million workers in 2010, or 13% of the workforce. Unless there is a sustained increase in housing-related activity, we should expect further retrenchment in not just the real estate industry, but also the financial sector, housing construction, and potentially government agencies as stamp duty revenues contract.
The ABS housing finance commitments, which are due for release this morning, should provide a solid indication of where the housing market is headed. Our leading indicator, AFG origination data, is not particularly encouraging for either December or January.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
