From Property Observor today comes this gem from RP Data, showing that the volume of home sales in calender year 2011 was the lowest in 15 years:
The number of property transactions in 2011 was the lowest number of calendar year sales since 1996. The annual volume of sales across the nation was 25% lower than it has been on average over each of the last 10 years, highlighting just how challenging market conditions have been for the industry, according to RP Data.
The 2008 calendar year was the most recent weakest year for the housing market, with capital city home values falling by 1% and 416,859 home sales over the year.
In comparison, capital city home values fell by 3.8% in 2011, however there were 373,394 home sales during the year, 10.4% fewer than in 2008…
Across the nation, the number of home sales has been trending lower since September 2009, according to RP Data.
Not so coincidentally, September 2009 was also the last month at which the Reserve Bank held its official cash rate at historically low levels following the economic turmoil in 2008 and was also the last month in which the boost to the first-home owner’s grant was available in full.
The slowdown in transaction activity throughout 2011 is in line with the 3.3% annual drop in housing finance commitment volumes for new loans (not including refinances)…
Across individual capital city markets the change in sales activity over 2011 has been quite varied. Like property values throughout 2011, sales volumes also fell across each capital city over the year, with declines ranging from 3% in Darwin to a decline of 17.5% in Hobart.
Across each capital city sales activity in 2011 was also below the 10-year average annual volume of sales.
Again there was quite a range, with sales activity in Sydney just 11.6% below the 10-year average and in Brisbane annual sales volumes were 36.9% below average.
Interestingly, across most capital cities, 2011 had the lowest volume of sales over the year of any year of the past decade, however, this wasn’t the case in Sydney and Perth. Sydney recorded fewer sales in 2004, 2005 and 2008 than it did last year and Perth had fewer sales in 2008 than it did last year.
Clearly 2011 was a very weak year for housing transactions.
The higher interest rate environment throughout much of the year and the general conservative nature of consumers were likely to be the biggest influences on such a low volume of sales.
RP Data’s forecast is for a modest improvement in transactions volumes in 2012, but certainly nothing to get excited about. They also expect no real house price growth but decent growth in rents:
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We are anticipating transaction volumes will pick up over 2012 due to slightly more favourable conditions.
Interest rates have already been cut by 50 basis points, and we saw that the first of these consecutive 25 basis point cuts encouraged a greater level of sales activity in November 2011.
Many economists anticipate that the RBA will cut rates further in 2012 which is likely to improve market sentiment further.
Capital city rental rates rose by 5.8% over the 2011 calendar year while capital city home values fell by 3.8%. Although we aren’t anticipating any real growth in home values this year, we expect that rental rates will lift again in 2012 across most cities.
Ongoing increases in rental rates accompanied by a lower interest rate environment is likely to encourage some renters to purchase their own home.
Even though we expect that sales volumes will improve in 2012, it must be kept in mind that any improvement will be relative to the weakest year for sales activity since 1996.
On the subject of rental returns, it is interesting to note that despite the 3.8% slide in capital city home prices in 2011, and rental growth of 5.8%, gross rental yields – i.e. before property expenses are taken into account – remain well below mortgage rates, ranging from only 3.62% in Melbourne to 4.68% in Brisbane:
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Overall, RP Data’s report suggests continued softness in the Australian housing market.
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.
