Sales volumes have tanked. What’s going on? Please, someone tell me.
Here’s a puzzle for you. Let’s see if we can crowdsource an answer?
It’s got to do with volumes – the number of houses being bought and sold in Australia.
Right now, we’re living through one of the driest periods on record. It’s a veritable drought.
John McGrath had this graph in a recent report to shareholders:
As it shows, the share of total dwellings for sale right now is at the lowest level on record.
There was a particularly sharp fall that kicked in around the beginning of the year.
This is a bit of a puzzle. Why have volumes fallen – especially since we haven’t seen falls in prices in most cities. In fact, volumes doesn’t seem to be connected to the cycle at all – or at least not clearly.
So why have volumes fallen. I’m genuinely asking here. I’m not sure what to make of this phenomenon.
John McGrath reckons its because people are afraid that if they sell, they won’t be able to get back into the market.
“For much of calendar 2016, we have been in an environment in which vendors are reticent to sell, fearing they will not get back into the market.
… it was as though every vendor woke up in the New Year and made a resolution not to sell.
… In 2005, residents in Australian Capital Cities would move house on average every 6.7 years, and apartment every 5.9 years. Today that is 10.7 years and 9 years respectively. This contributes to the decline in volumes available for sale, eroding housing affordability in many capital cities of Australia, including Sydney.
Of course it’s a bugger for John McGrath. Real Estate Agents are a volumes business. They need to be selling houses to be making money.
But McGrath’s explanation sounds a little simplistic to me. ‘People are just afraid to get out of the market’. It’s not very satisfying.
I mean, maybe it makes sense now that volumes are at historic lows. It might be reasonable to worry about whether you’re going to be able to get back in if you get out now.
But that doesn’t explain why volumes tanked in the first place. It couldn’t have been fear that drove the market at that stage.
Though if you remember back to the new year, we had a very rocky first couple of weeks. Real Estate markets were still reeling from the APRA restrictions, and there was a major stock market wobble.
So maybe volumes dried up with the New Year, and uncertainty stopped people coming back. From then on, it’s been a fear of not getting back in.
Maybe. Sound convincing to you?
But the ‘fear of not getting back in’ only applies to owner-occupiers. 30-40% of the market are investors, and I don’t think investors ‘upgrade’ their investments the way owner-occupiers upgrade their homes.
That said, I think investors are more likely to hoard properties and keep them from the market. I know I do. Once a property is working for me, and it’s positively geared, why would you sell it?
So I don’t know… I need to do a bit more thinking about it. Would welcome anyone’s thoughts on it.
Part of me wonders if Australians just think about property differently these days. You can see from the chart above that volumes peaked in 1999, and have been on a downward run since then (with a few ups and downs).
So maybe everybody thinks like an investor now. Once you’ve got a toe-hold in the market, hang on to it. If you’re going to upgrade, buy a new house and keep the old one as an investment. I know a few people who have done this…
Maybe..?
The implications are kind of interesting too. On the face of it, thin markets tend to bid up prices. If demand is the same, fewer properties for sale means there’s more competition around the ones that are on the market, and that means higher prices.
And the ongoing surge in Melbourne and Sydney, which has taken a few people by surprise, could reflect this.
However, it’s a double-edged sword. In thin markets, a small number of ‘low-side’ sales can create the impression that the market overall has fallen.
That has the potential to create a self-fulfilling run lower.
But so long as volumes fall short of the growing population and particularly first home buyer need, then I think this phenomenon will keep a floor under prices.
But I’d feel a lot better about this conclusion if I had a better sense of what was driving it.
Help a brother out?
Jonnyacidseed says
Hey John, Great weekend at the Sydney Super conference last week – had a ball! (I was the bloke that had a quick chat at the airport while you were hopping out of your cab on Sunday)
I’ll go with the theory of house prices/servicing loans is getting unaffordable coupled with fear of re-entry back into the market once sold. Wages/salaries increases have been at record lows, along with business confidence, so serviceability is getting hard, and scary! (for some)
Karan Goda says
Theres a thin orderbook both ways, which ever point in price faces the biggest support or resistance is where it will go.
Sarah S says
Hello Jon,
This is a very interesting topic however in saying that house prices haven’t moved very much is not applicable to the area I currently reside.
My fathers house was valued at 320k at the beginning of the year and I rescently had 3 valuers come in and the average was 230k that is a 90k drop in 12 months. I need to sell my dad’s house but I could not do it due to this downturn in the market.
Now a bit of background on myself, I work for a builder and have a mortgage broker in my pocket and the banks are turning down people for loans that meet serviceability, they just don’t want to give out money. In 6 land sales in 1 month we had 4 fall over due to the bank and market evaluations.
There is something more to the banks not giving out loans that they are not telling us I believe. The head honchos know something we don’t.
Charlie says
As long as negative gearing & CGT concession is in place, price is floored. Young generation will never be able to get a foot in. Budget deficit will keep growing & other government cuts keep kicking in
Andy Burford says
Very simple, interest rates are lower so it’s more profitable to hold properties and the costs of exchanging property is too high, especially stamp duty.
sanjay says
With the GFC just gone by common man is still not confident of other investment classes and they still find Brick and mortar is still safer, so they are holding onto it, people still move but they hold onto the original ppr as an investment property I think sanjay
ron goddard says
hi jonno,
being in the real estate business in attadale (perth) is a little different to say brighton in victoria on the other side but is the same in terms of ‘socio economic’ conditions : in other words my area is considered ‘upper class’ lol.
obviously from what i read brighton is roaring ahead in price rises etc. whilst attadale is steady but has fallen 10% in the past 12 months, notwithstanding the fact that properties for sale here in my part are non existent. i ‘have’ 4 buyers range $1.2-1.4 m but nothing to show them. so that is a reason for little or no volume. the thinking here is that why sell now? wait until conditions improve is the answer. but i do not agree with that premise. is there ever a good time or a bad time to sell? my experience is that the most important part of the sale process is and has always been ‘reason for sale’. that question is the one that is first on my list of the owner/s. there are multitudes of reasons for sale, but you know what? you will almost NEVER get the correct answer to the question unless of course they are buying /upgrading their housing requirements though you as agent for the transaction. how many, pending divorces, stress sales etc . are there that require patience as the agent, to work through before getting the truth? remember ‘colombo’ the detective who,leaves the suspect saying goodbye, then for no apparent reason turns back and says ” by the way, what is etc.and the poor suspect(his brain out of gear:-)) opens up accidentally. lol thats it : by the way, why are you selling?
of course now there (a no brainer) are low interest rates etc. so why bother selling and trying to get better returns somewhere else?. so that is now. what about about next february? interest rates WILL rise. yes indeed. and once the flow starts ..well you guess. then of course everybody will ‘jump ship’.
we are ‘herd’ mentality thinkers. we find the lemmings of siberia a bit stupid, but apply that to a human financial situation..no different. believe it or not, there are massive changes coming to our world as various euro nations are in ‘trump’ mood to rid themselves of the past idiots who have wrecked their economies. in fact if not for china we would been in the same boat. do you really think that turnbull, abbot etc. know what they are doing? not a chance. can they ‘fix’ things? dream on.
so it gets back to you jonno. and me. and other people to govern their own destiny. read intelligent reports. (not newspapers or tv etc. they are a haven for scumbags). and asses things in your field. only you can make a life for you.
now go to ‘diego garcia atoll’ website and scroll down to ‘journalist hijacked on mh370’. it is quite enlightening. it is not the full story but it does give one the impression that the governments involved in the ‘search’ are really not quite the full quid or maybe aren’t being honest to us the public. governments involved are UK, USA. China, Australia, Malaysia on side feeding us b.s. and Russia on the other side revealing all the details as it happened. my info on this dates back to 10th march 2014, but people i know said i was a crackpot. oh well, maybe. at diego garcia atoll is perhaps the largest USA base in the world. from there they have serviced the ‘wars’ in afghanistan, iraq etc. they boast that their surveillance technology is the greatest! they claim that they can not only see/detect a golf ball in the vast reaches of the indian ocean, but can read the maker’s name as well!! so one wonders. maybe the mh370 was too big for their screens lol. i may be a crackpot but it seemed logical to me forever that the surveillance at d.g. atoll should have give us more info. don’t you agree? as for the passengers and crew of mh370 (245), maybe just maybe they are still alive. why?
because the mh 370 did not crash into the sea, it landed quite safely at d.g. atoll. that is why it is sheer bastardry to keep this type of info from the public. imagine the distress and agony so many people have gone through. and the US navy and the oz governemnt? don’t give a rats arse about it or us. never trust governments.
Mags H says
My theory for some of the ‘lack of stock’ of housing stock is Stamp Duty. Yes, it’s always been there but I think for some people if Stamp Duty was not so huge now (due to house prices rising) and you get no benefit from it, if people were thinking of upgrading a bit, the enormous donation to the State Government is an ever larger turn off. Yes, housing prices is growing but by default so is the value, so yes you are paying more but you are increasing your assets. $100k of after tax income to pay in Stamp Duty is a significant amount of money to 99% of Australians.
Leroy says
That’s my exact theory also Mags. Add on top of that selling costs and moving costs and it’s a 150K proposition to move. And if you are “upgrading”, you need additional cash for the upgrade.
Paul says
I also vote for Mages theory this would have to be the obvious answer
RBG says
The gap between un-renovated and renovated is closing…. I could sell my property and buy a renovator, but by the time I spend on reno/stamps/rent during reno, then I might as well stay put.
Roger says
As an agent I have observed the same phenomena in Qld in the last few months. ( Our market always lags the southern states ). Prices are on the rise but listings are way down. In the first half of the year there was steady price appreciation of around 3 to 5% and anything sensibly priced was selling quickly to the extent that we found ourselves with only half the amount of listings we would normally hold. Prices as a consequence rose a bit quicker but now at the end of the year we appear to have a buyers strike and sales have slowed to a trickle. So I can confirm what is occurring but cannot furnish an explanation. Is it fear of ” THE BUBBLE ” bursting ? Maybe we can blame The Don for causing people concern for the future. Now that we are into December sales traditionally slow over the festive season, perhaps the Christmas lull has come early. We will have to see what the new year brings.
Rick says
Often statistical quirks are caused by changes in definitions that have applied for years. Is this a change in the nature of what is defined as a “dwelling”? If a greater proportion of apartments are being built, maybe their owners hold or sell them on very different terms from those of a house and land.
Tom says
Upon reading Jon’s initial quest for reasons, my immediate reaction was to point the finger squarely back at him & Dymphna. They have done an amazingly significant job of changing our housing market:
1. Insisting on Positive Gearing
2. Insisting on holding for the long term instead of our earlier habit of buying & selling quickly.
3. Re-financing rather than selling, to raise cash for new investments.
Malcolm and Mr. M. are bewailing the fact that Aussies are not investing in job-creating businesses, which they had been counting on in their non-three-word-slogan of “Jobs and Growth”.
Probably, the security and productivity of real estate investment, especially with the Superannuation and Tax benefits available, have drawn so many oldies into bricks & mortar, as they adjust from energetic mid-life risk taking investing into a secure income phase.
Having climbed to well-paying positions, after the nest emptied, many Baby Boomers have been able to look to saving for retirement, rather than taking on the extra work of establishing new businesses. They want to put their feet up.
Wage freezing and competition with Baby Boomers & overseas investors looking for stable market prospects have made it impossible for the younger folks to take part in the “Great Australian Dream”. We are rapidly getting into the European model of “Haves & Have-nots”, with a large proportion of the community renting. The whole Café Laté phenomenon is a symptom of their having given up hope of ever owning their own home. “Live for today” has replaced “Carpe diem”.
Simon says
Maybe we can crowdfund a new yacht or hol in aspen for McGrath et al.
Bicycle Lover says
The sales volumes in Bayside Melbourne are around 35% on previous years. I also believe that high house prices (average $1.46m here) has placed Stamp Duty and Sales Commissions (both percentage based) at the threshold that people now find intolerable. Remember Stamp Duty is one of the “inefficient” taxes that GST was going to replace. Still here doing it’s damage.
The lack of supply is driving up prices by competing buyers who are so desperate to buy that when then do find something they want, they are willing to stretch to get it. Add to that the fear of not getting back in if you sell and cannot find anything suitable to buy, and finally the “herd mentality”… “.. if no one else is selling, there might be a hidden reason…I had better not also … “. Same mentality as during the past recessions, when lots of people are unemployed, everyone stops spending and battens down the hatches, … even those in secure well paid jobs who are not impacted by the recession.
There may not be one causal factor, but many component factors. The economy is rather flat overall, the Government is has no grand vision for our future or majority to achieve any significant changes, the banks and APRA have put the brakes on investment activity, RBA is running out of fiscal leverage, wage growth is stagnant, the house-price-to-annual-salary-ratio has peaked, Sovereign Debt is enormous and still rising, first home buyers are frozen out, upgraders and downsizers are not willing to pay the costs associated with change …. so everyone sits on their hands.. therefore no new listings.
ron goddard says
jonno,
you and other people here must realise that the major banks here have ‘off sheet’ balances of over AU$1,500,000,000,000.00(AU$1.5tn) for resi.(80%) and commercial loans(20%) purposes. this money ‘flows’ (has ‘flowed’) into oz since early 2000’s at low interest rates(but a heck of a lot better than ‘overseas’ rates).
you do not need to be a ‘rhodes scholar’ to see that if/when interest rates rise as per the ‘fed’ this month and a forecast of four more interest rate rises next year that it will cause a tsunami of roll on effects throughout the world, not missing oz. the first sign will be panic in the stock marker, then panic selling of commercial, untenanted property, followed by the ‘herd’ residing in residential. there could well be massive ‘selloffs’ of negative geared properties, and more severely, the first home buyers who have been sucked into overpriced properties. imagine the stress for those who have mortgaged themselves recently in melbourne and sydney. the last, very last thing that they need is a rates hike!!
being an old fossil of 46 years in this real estate business i clearly remember 1983. in perth, areas like como and south perth were being ‘developed’ at 100 mph so much so that there were many hundreds of unsold new villas triplexes, duplexes for sale for prices of around $150k. interest rates skyrocketed to unbelievable heights, 14-17% being quite common. at about that time or before, the first ‘aids’ cases were being reported throughout the known world. we had a saying in our business then, ‘what would you rather have, a dose of aids or a unit for sale in como? or yesterday’s bargain is tomorrows overpriced property? values were falling so fast, these units, villas etc. were selling for half price. a local identity, nigel satterly, called himself the ‘undertaker’, burying the developers. he was given instructions at the time, by banks and finance companies, to sell everything for whatever price.
well if you wanna forecast the future look at the past. every 80 years or so there is a correction (depression), the lastie was 1930. human nature dictates everything in this world. empires rise and fall. its all just so cyclical. so what do you do now? sit on your hands and think? so, jonno there is your answer. a house has become an ‘investment vehicle’. and that is the problem. too many people ‘invest’ in real estate to the detriment of the genuine home lover. and when the overseas investors want more interest or money returned, then the chooks will be coming home to roost. neg. gearers will be wiped out en masse like before. simply, the financial world cannot tolerate over US$1,000,000,000,000,000.00 in derivative debt. 5 USA banks have a total of over US$250tn. in d.d. as a ratio 5:1 assets. they are teetering and are petrified of the donald because he wants to bust them and the ‘fed’ too. and remember too that oz banks are INEXTRICABLY tied to american banks. now that is a big worry.
oh..poor hillary is in paris getting stem cell treatment for stage3 parkinson’s.disease. see, even billions of US$ cannot save you from the ravages of nature. maybe our aborigines knew something.
ronald goddard says
oh..just a reminder ..december 15th, the ‘fed’ will raise interest rates 0.25% (?) and this will send ‘shock’ waves around the globe..can you imagine what a ..say 2% rise would do? yikes that could be the end of the human race (joking). but you can see whats gonna be ‘in the wind’ soon. so don’t be an ostrich!
thank goodness for your column jonno. its a free expression place which would never be allowed in the media i do not think. enjoy your gin and tonic!
Bomber Charlton says
I put the blame to a large degree on the cost of stamp duty. If you’re looking to upgrade to a bigger/newer house or you can alternatively just renovate your own house, the cost of stamp duty is becoming a very high proportion of the renovation cost. A $1.8mil property (an average price for upgraded properties throughout most parts of Melbourne) costs an extra $99K in stamp duty alone. That’s half of a $200K reno that could see you whack a new big open plan kitchen/living onto the back of your existing house.
Worst tax outside of payroll tax.
Brendan says
Stamps is the killer, any chance of getting your two-bobs worth on interest rate direction short and long term? Cheers