Some commentators have questioned the sustainability of the residential property market recovery because it is based on very low sales volumes. If and when stock levels rise, conditions may weaken again.
CoreLogic research analyst Cameron Kusher says that may prove to be the case but he says the evidence of past cycles shows that the early stages of a housing recovery are usually characterised by low sales volumes.
Kusher has examined monthly sales volumes compared with quarterly change in dwelling values going back to 1989. He says that what becomes quite clear from the data is that when values are declining sales volumes typically fall, and increasing values typically lead to higher volumes.
But the market doesn’t respond immediately. When values start rising, initially at least, it isn’t necessarily occurring in concert with a rise in sales volumes. The 2009 and 2011 market recoveries show this to be the case.
“This is precisely what is occurring at the moment, specifically in Sydney and Melbourne,” Kusher says.
Coming out of the global financial crisis, national dwelling values started to rise in January 2009. This bounce occurred with very low volumes of auctions taking place.
Again, the housing market recovery that started in early 2012 saw a relatively low number of auctions occurring right through until early 2013.
Kusher says the number of new listings nationally is currently the lowest for many years. Listings are 18.9 per cent lower than at the same time last year. Total listings are also at the lowest point they’ve been at for many years.
“You can’t say that an increase in dwelling values is not sustainable just because the volume of stock either selling or going to auction is low. Ultimately, you can only transact what is actually available for sale, and at this point there is not a lot of stock available.
“As we enter spring that may change and a higher volume of stock for sale may prove to snuff out any increases in housing values. But at this stage the improving trend is quite real.”
According to the latest CoreLogic Home Value Index, values rose in most capitals in July. The Sydney, Melbourne and Brisbane markets were all up 0.2 per cent in July. Hobart was up 0.3 per cent and Darwin was up 0.4 per cent.
The Adelaide market was down 0.3 per cent, Perth was down 0.5 per cent and Canberra was down 0.3 per cent.
Year on year, all capitals except Hobart and Canberra are still recording falls, with Sydney down 9 per cent and Melbourne down 8.2 per cent.
CoreLogic head of research Tim Lawless says: “Our national dwelling value index may have found a floor in July, with dwelling values holding firm over the month following a consistent trend towards smaller month-on-month declines through the first half of the year. The stabilisation in housing values is becoming more broadly based.”
The key factor supporting the turnaround is lower mortgage rates, giving borrowers greater loan capacity.