Housing sales are tumbling in Australia and affordability is largely to blame

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  • Housing sales are tumbling across Australia, especially in the capital cities.
  • According to CoreLogic, just 4.6% of all Australian homes changed hands in the year to July, below the 5.3% level in the preceding 12 months.
  • Housing affordability constraints largely explains the broader decline in turnover levels. Recent market weakness in Sydney and Melbourne, joining Perth and Darwin before them, has also been a factor.

Property sales are tumbling across Australia, largely reflecting reduced affordability following strong price growth over the past decade.

According to CoreLogic, just 4.6% of Australia’s total housing stock changed hands in the year to July, down from 5.3% in the preceding 12 months.

As seen in the chart below, the decline largely reflects a steep drop in turnover in Australia’s capital cities where home prices are usually higher than in regional areas.

CoreLogic

And given their sheer size, that largely reflects a sharp decline in sales in Sydney and Melbourne, Australia’s most expensive housing markets, where just 4.1% and 4% of properties turned over in the past 12 months.

Jade Harling, an analyst at CoreLogic, says there’s a good reason why sales levels in these cities are tumbling — while affordability has improved, homes are still far from being affordable for many households.

“Based on the findings, it’s likely that housing affordability has delivered a large impact on the broader downward trend in turnover rate,” she says.

“Fifteen years ago the dwelling price to income ratio as a national figure showed that dwelling prices were 5.1 times as high as the gross household income, while recent data shows this has increased to 6.8.

“In Sydney and Melbourne, where affordability has been a challenge for prospective buyers for some time, the price to income ratio sits at 9.1 and 8.1 respectively.”

And it’s not just the cost of the property that is contributing to lower turnover rates but also transaction costs associated with the purchase, especially stamp duty, Harling says.

“High transactional cost to purchase property has likely added a further barrier to housing market participation,” she says. “Stamp duty costs as percentage of the purchase price are a major barrier to entry, especially in the more expensive markets.”

While declining affordability explains the broader decline in turnover levels since late 2015, the recent market downturn, driven in part by tighter lending standards for investor, interest-only and high debt and loan-to-income borrowers, as well a record amount of new housing supply, has likely dissuaded many owners from putting their property up for sale.

“The more pronounced decline in turnover rates over the year to July is hardly a surprise given current market conditions, with dwelling values softening each month now for the past 12 months,” Harling says.

She says that amount of stock being put up for sale over the past six months fell to the lowest level since 2012, indicating that fewer owners are willing to list their property at time when demand is weak.

According to CoreLogic, there were 117,759 homes listed for sale last week across the capital cities, an increase of 10.2% from 12 months earlier. In contrast, new listings — defined as those properties that have not been put up for sale within the past six months — fell by 3.7% over the year to 27,333.

So despite lower new listings, total listings continues to increase, indicating that it’s now taking longer for the average home to sell.

With demand weak, affordability still constrained and fewer additional homes being put up for sale, it’s little wonder turnover levels are so low.

This chart shows property turnover levels across Australia over the past 12 months.

CoreLogic

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