Across the nation, the number of home sales has been trending lower since September 2009.
Not so coincidentally, September 2009 was also the last month at which the Reserve Bank held their 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 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).
The number of 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. The 2008 calendar year was the most recent weakest year for the housing market with capital city home values falling by -4.1% and 416,859 home sales over the year. In comparison, capital city home values fell by -3.8% in 2011 however there was 373,394 home sales over the year, -10.4% lower than sales activity in 2008.
In 2011, sales of homes in the capital city markets accounted for 64% of all sales over the year, which is broadly in line with the proportion of the population that lives within the capital cities.
Focusing on sales of houses as opposed to units shows that across the country 71% of all home sales were for detached houses. In the capital city markets the figures were a little lower with house sales accounting for 67% of all sales over 2011. Over the past 12 months and over the last five years, units have enjoyed a stronger capital gain performance than houses. We would expect that this trend is likely to continue as potential buyers enjoy the location benefits often associated with units and the fact that they are typically much more affordable than a detached house.
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 -3.0% 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 of results, 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. 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.