A disappointing end to the decade

On an annual basis, 2010 recorded the lowest level of dwelling sales activity of any year during the past decade.

During 2010 there has been a marked decline in the volume of property transactions taking place. This decline has been quite noticeable over the second half of the year as property value growth in the market has stalled. The slowdown in property transactions has been inline with fairly weak volumes of housing finance commitments for owner occupier purchasers once refinances are removed.

During late 2010, sales volumes of houses and units have slumped to similar levels to those recorded during the depths of the Global Financial Crisis (GFC) during late 2008. The state of the Australian economy is currently far superior to the performance at the time of the GFC however, affordability constraints are being felt in the market and a lack of first home buyers and investors is hampering volumes. So too, are the restrictive costs of purchasing such as stamp duty. Although stamp duty has always been a cost associated with the purchase of a property, as properties become more expensive purchasers typically pay a higher amount of stamp duty and this has to be factored in to the cost of purchase.

Over the past 10 years, sales of dwellings on a monthly basis within capital cities have accounted for an average of almost 64% of transactions nationally. Over the period the proportion has remained relatively constant, during December 2010 64.5% of dwelling sales occurred within the combined capital cities.

The results also highlight that houses remain the most popular dwelling type across the country. During December 2010, 67.8% of all dwelling sales in capital cities were houses with the remaining 32.2% units. When we look at those areas outside of the capital cities, houses are significantly more popular with 78.9% of dwelling sales recorded for houses and the remaining 21.1% unit sales.

With housing affordability stretched currently, we expect that particularly within capital city markets, the proportion of unit sales will begin to increase over the coming years as they provide the opportunity to purchase at more affordable prices, often within superior locations closer to amenity.

During the 2010 calendar year there was 266,070 sales of houses and units within the combined capital city markets and 404,847 sales across all areas of the country. The volume of sales last year was the lowest of the decade both across the capital cities and all regions of the country.

During the past 10 years, average annual dwelling sales volumes have been recorded at 324,396 within the capital cities and 507,245 sales across all regions. Given this, 2010 sales volumes are -18.0% below average within the combined capital cities and -20.2% below average across all regions of the country.

Across individual capital cities, dwelling sales were below the 10 year average in all cities. Sales volumes in Sydney were only -11.4% below the 10 year average followed by: Adelaide (-14.2%), Melbourne (-14.4%) and Perth (-23.7%). At the other end of the spectrum, sales volumes in Darwin were -30.3% below average followed by: Brisbane (-29.3%), Hobart (-28.1%) and Canberra (-26.6%).

Undoubtedly 2010 was a sluggish year for sales activity in the residential property market with volumes at their lowest level in a decade. Although we are not anticipating much in the way of property value growth during 2011 some indicators suggest that sales volumes will improve. Housing finance commitment volumes have levelled and are now improving slightly, unemployment is at 5.0%, wages are growing at a level above inflation and limited growth in property values coupled with wage growth is likely to improve housing affordability.

Although we are anticipating an improvement in sales volumes, it seems unlikely that volumes will revert to 10 year average levels. Importantly, any improvement will be relative to the weakest year for sales activity in more than a decade.

Tim Lawless is the Director of Property Research at RP Data.