Low mortgage rates encourage greater sales volumes- Cameron Kusher

Across the country there has been an increase in house and unit transactions however, this hasn’t necessarily translated into an increase in home values, this week we look at the lift in sales across the nation and capital cities.

A strong theme across the residential housing market throughout this year has been the rising home values which are 8.0% higher over the 12 months to November 2013. Another factor that has been prevalent across the market has been that transaction activity has also increased.

Over the three months to September 2013 there were 85,704 houses and 32,597 units sold across the country. In comparison to the same three month period a year earlier, house sales were 12.4% higher and unit sales were 12.6% higher.

As you can see from the first chart, transaction volumes are now 5.5% higher than five year average levels. Transaction volumes reached a most recent low over the three months to February 2011 (88,836) and are now 33.2% higher.

quarterly sales

Looking specifically at the combined capital cities which account for more than 65% of the nation’s residents, we can see the pick-up in transactions has been even greater. Over the three months to September 2013, there were 53,728 capital city house sales and 24,585 unit sales. 62.7% of all house sales over the quarter and 75.4% of all unit sales occurred within the combined capital cities.

Transaction volumes were 16.7% higher than over the same period in 2012 for houses and 13.2% higher for units. Quarterly sales volumes within the capital cities also reached a recent low in February 2011 (57,852) and sales volumes over the most recent three months were 35.4% higher.

If we look at the year-on-year change in home sales across the individual capital cities we can see that across each city transactions are higher than they were a year ago. Keep in mind, home values are also higher than they were in each city except for Hobart.

quarterly sales 2

Sydney has experienced the greatest year-on-year change in home sales, up 23.3%. Not surprisingly Sydney has also been the strongest capital city housing market for value growth with values 12.5% higher over the 12 months to November 2013. Elsewhere, home sales have recorded substantial increases in Darwin (20.7%), Brisbane (18.0%) and Adelaide (18.0%).

Interestingly, in each of these cities the rise in sales transactions has not resulted in a substantial lift in home values. Darwin home values are just 1.6% higher over the 12 months to November 2013, Brisbane values are 2.8% higher and Adelaide values are up by 2.6%. Potentially the lift in sales volumes could be a precursor to a lift in values over the next 12 months.

quarterly sales 3

Although sales volumes are higher than a year ago across each city, it doesn’t necessarily mean that they are actually that high. Looking at sales volumes compared to the five year average you can see that they are only above the five year average in: Darwin (18.7%), Brisbane (17.0%), Perth (15.8%) and Sydney (12.5%) and Adelaide (3.2%).

It is also important to remember that the ongoing weak performance in Brisbane and Perth over the past five years means the rise in transactions has come from a very low base. Nevertheless it is encouraging to see that low mortgage rates are encouraging a higher level of sales activity.

quarterly sales 4

With transaction volumes having picked up over the year and the expectation that official interest rates will remain below 3% until at least May 2015, it will be interesting to track just how much higher transaction volumes increase. Particularly in markets such as Sydney, Melbourne and Perth where there has been a significant increase in home values.

Although values are higher and mortgage rates are low it is unlikely to stop affordability constraints entering these markets. On the other hand markets such as Brisbane and Adelaide which have already seen an increase in sales but no significant value growth may be well placed for value growth and a further lift in transactions over the coming year given homes are significantly more affordable than those across the other major capital cities.

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Cameron Kusher

About

Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au


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