The lowdown on the Xmas slowdown

It has been widely reported how well the Australian property market has fared during 2009: based on the RP Data Rismark Monthly Home Value Index, most capital cities have seen property values rise well above their previous peaks. National property values are up 10 percent over the first ten months of the year.

From another perspective, looking at the number of property sales that have transacted from month to month, total property transactions have actually been relatively subdued. Over the year to October, the monthly number of properties sold has failed to break the ten year average mark of 61,400.

Even with transactions remaining low compared to the historical average, market activity has recorded a vast improvement from last year when the number of sales bottomed out at just over 43,000 sales in the month of August. Monthly volumes during 2009 have averaged 55,000 sales each month – a 27.5 percent improvement from the August ’08 low.

The relatively low number of sales comes at a time when demand for property is growing, thanks to record population growth and improved confidence in the broader economy and property market… so the question must be asked, “why are sales volumes so low?”

The reason largely comes down to the tight level of stock in the market rather than any lack of demand for real estate. Despite the fact that new listings to the market have improved since June (up from about 44,000 new listings each month to about 50,000), the total stock levels have been consistently falling as actual demand outweighs supply.

On a slightly different note, the trend of sales volumes over the Christmas period will be interesting to watch. A finding that may come as a surprise to some is that many buyers remain active during the last weeks of December. As shown in the graph right, the 51st week (or second last week of the year) of the year typically sees a jump in the number of properties sold as buyers look to finalise contracts prior to the Christmas festivities. The same trend is evident in the weeks leading up to the end of the financial year.

January is a much more subdued month and is by far the quietest month in terms of the number of buyers and sellers actively involved in the market. Virtually no sales occur in the first week of the year and the second week of the year is not much better. By the second half of January we should start to see some life return to the property market.

The outlook for 2010 with regard to sales volumes is fairly upbeat. Even though interest rates are rising and much of the government stimulus will have been wound back, we expect investor and ‘upgrader’ numbers to continue improving which will provide some balance to the prospect of fewer first home buyers.

Consumer confidence remains high and there is already speculation that unemployment is peaking, which will continue to support interest in the property market. Additionally, the medium to long term growth prospects remain very healthy, providing further encouragement to those considering buying: housing remains in undersupply and population growth is projected to remain very high creating an ongoing imbalance between demand and supply and rental yields are at reasonable levels with the likelihood of yield improvements as rents once again start to grow.

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