Elite AgentINDUSTRY NEWSNEWS

The Road Ahead

Over the year ending March 2011, RP Data estimates there were just 389,320 house and unit sales, 18% below the five year average.

Looking forward, we do expect sales volumes to slowly improve during 2011. Interest rates look as though they are stabilising, the job market remains tight, wages are increasing, and business conditions are showing improvements.

In today’s property market, what is the outlook for property transactions?

Over the March quarter this year, the number of house and unit sales was 18.2% lower than the same quarter in 2010, highlighting the fact that most segments of the market are currently quite inactive. First time buyers have moved from a peak of nearly 30% of all owner occupier loan commitments to less than 16%, and the value of investor commitments has fallen by 16% over the year.

To provide some perspective, on average, we expect to see about 475,000 house and unit transactions each calendar year (that’s the average over the last five years). Over the year ending March 2011, RP Data estimates there were just 389,320 house and unit sales, 18% below the five year average.

With buyer activity slowing down, we have consequently seen stock levels rising across both the capital city and regional markets. Nationally we are now tracking just over 285,000 houses and units that are available for sale across the country. Last year the count was 212,600. The rising stock levels and slowdown in buyer commitments can be seen in the fact that properties are taking longer to sell, (55 days on average across the capitals), and vendors are becoming more flexible in their selling price expectations (vendor discounting for private treaty sales is now averaging 6.5% across the capital cities).

Lower numbers of home sales certainly hurt the hip pocket for anyone in the industry – fewer sales translates to less overall commission, fewer mortgages being written, less conveyance work and less stamp duty for the Government. The multiplier effect of fewer transactions also can be felt in fewer sales of white goods, electronics and home furnishings, less removalist work, fewer pest inspections, and the list goes on.

Looking forward, we do expect sales volumes to slowly improve during 2011. Interest rates look as though they are stabilising, the job market remains tight, wages are increasing, and business conditions are showing improvements. Without doubt, buyers are well and truly back in the driver’s seat with more stock to choose from, and less pressure to make a purchase decision.

What property types are buyers favouring in today’s market?

More and more we are seeing a trend towards buyers choosing medium and high density housing options. Last year, unit sales (typically including attached and semi–attached product), comprised 29% of all transactions in the market. Sydney, which has the most mature unit market, recorded 44% of all transactions within the unit sector.

The reasons for more medium and high density sales are varied, but it generally comes down to the more affordable price points for this higher density housing and changing lifestyle preferences (particularly amongst baby boomers and Gen Y’s).

We are also seeing an ongoing trend towards smaller land areas for new development. The recently released HIA–RP Data Residential Land Report for the December quarter shows the average lot sizes have been steadily trending smaller, with Sydney and Melbourne’s average house block size now about 515 sqm. Perth and Adelaide are recording the smallest average lot sizes at 458sqm and 362sqm respectively. Brisbane and Hobart are showing the largest block sizes, averaging 600sqm and 683sqm.

What are your views on conflicting commentary about a property bubble burst?

Our view is (and always has been) that Australia’s housing market is not in a bubble. A bubble suggests property values are likely experience a rapid material decline in values, an event that is not likely to be on the cards. Australian home values have shown dramatic growth over the last ten years, but there have also been periods where the housing market has been exceptionally slow, (for example 2004 to 2006), across most markets.

The primary growth drivers have been the fact that banks have shown a greater willingness to lend for residential property, and the fact that Australia’s population growth has been very rapid creating unprecedented demand for housing.

Like any asset class, the growth cannot continue forever, and there will be times when values fall. Home values across the combined capital cities fell during 2008 and currently we have seen a fall of 1.6% over the most recent three month period.

Since the beginning of 2009, property values across the combined capital cities have recorded strong growth, however when you dig deeper, you see that Brisbane and Perth in particular have recorded limited growth, while Sydney, Melbourne and Canberra have been standouts. Outside of the capital cities a number of regional markets have struggled. The reasons for the weakness largely comes down to the fact that price growth had been exceptionally high prior to 2008 and the fact that there is a lack of diversity in these economies with many regional markets being totally reliant on tourism, agriculture or retiree demand.

The capital cities are typically quite a different story. The economies are diversified, there is significant population within these centres (55% of the country’s population live within the four largest cities), and these areas are also where the bulk of employment opportunities lie. There does not appear to be a shock that will force owners to sell, if they do not get the price they want, they just will not sell. Unemployment is low, mortgage arrears are at low levels, and wages are growing at a faster rate than inflation.

Although we do not expect any bursting of a bubble, we are already seeing a controlled exit from the growth phase. Value falls have been subtle at worst and mostly confined to Brisbane and Perth. In saying this, we do not expect that these drops would be in excess of 10 per cent, rather we anticipate a sustained period of limited growth in values much like what happened in Sydney following its peak in early 2004.

Currently, many buyers simply can not afford to purchase and for this reason we expect that capital gains will be limited. Eventually as rental rates, wages and inflation balance out the recent value growth, we would expect that more purchasers will be attracted back into the real estate market – when that is remains to be seen.

Our view is (and always has been) that Australia’s housing market is not in a bubble. A bubble suggests property values are likely experience a rapid material decline in values, an event that is not likely to be on the cards. Australian home values have shown dramatic growth over the last ten years, but there have also been periods where the housing market has been exceptionally slow, (for example 2004 to 2006), across most markets.

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Tim Lawless

Tim Lawless is the Research Director at CoreLogic Asia Pacific. Tim has been in the Australian housing market industry for more than 20 years with a focus on research.