Dwelling sales numbers have fallen to their lowest in a decade according to numbers released by RpData, to the levels last seen in 2008. The 2008 numbers reflected the depths of confidence as the GFC hit hard and unemployment was rising.
This time around, the causes are different and can be summarized as:
- A belief that prices reached unsustainable heights in 2009.
- Increasing interest rates through 2010.
- The two-tier economy affecting a majority of home owners.
- A reduction in affordability.
- A reflection of falling prices.
- A belief that prices have further to fall.
The scale of negative news during 2011 to date, including the cyclone, floods, and increased petrol and other costs, has served to maintain a cautious stance by borrowers.
Graph of monthly volume of sales (Source: RpData, AFR)
A trend line through the data would suggest a continuing downward direction, but this is unlikely in present circumstances. Sales numbers rarely stay this low, and the high numbers of properties on the market suggests a pent up desire to sell. The current sticking point is price levels – vendors are always reluctant to accept lower prices, and the lack of sales is likely to continue until price levels reach a point at which the market can be cleared.
Price falls are across the board, nationally. A fall of 25% in Brisbane has been anecdotally attributed to the floods, as potential buyers are busy elsewhere, or holding back until conditions settle, but the evidence indicates that the fall was already underway before the floods hit. Darwin and Canberra are smaller markets coming off highs in prices.
Melbourne had one of the largest increases in price levels until 2009, but price levels have not fallen in excess of the national average.
In the December commentary, Propell postulated falls of between 2.5% and 5.0% in property values during 2011, and we appear to be on track, with national prices falling around 2.5% to date. It will take a raft of good news in the economy, in our view, before prices stabilize or recover, and we consider the outlook to be for a further fall in prices of about 2.5% over the next six months.
Much will depend on the outlook for interest rates, with buyers primed for an expected rate increase later this year. However, the interest rate outlook is improving, and we may well see no change in interest rates during this year. In that case, weak prices may continue until the Spring. At that time we may experience a stabilization of prices and an increase in sales activity.