Home sales likely to ease after hitting the highest level since 2004

Sales activity across Australia is poised to ease over the medium term after reaching its highest level since 2004.

Estimates from CoreLogic showed there were almost 598,000 house and unit sales across Australia over the year ending August 2021, the highest number of annual sales for the period since 2004.

On an annual basis, the number of sales grew by 42% from the previous 12-month period.

Compared to decade averages, the gains were also rosy at 31% higher than the 10-year average and 24% above the 20-year average.

Factors driving sales and turnovers

CoreLogic research director Tim Lawless said while this is surprising given that overseas migration has stalled, the growth can be explained by a lift in domestic demand from previously low levels.

"Housing turnover trended lower from late 2015 as credit conditions tightened, housing affordability became more challenging and transaction costs such as stamp duty became increasingly expensive as prices rose," he said.

Turnovers reached their lowest in 2019, when only 3.7% of Australian homes transacted over the year.

Mr Lawless said since that time, credit policies have loosened and mortgage rates have reduced to record lows, encouraging more Australians to participate in the housing market.

"Additionally, a higher rate of household savings since March 2020 has boosted consumer deposit levels and mortgage serviceability, while government incentives such as stamp duty concessions and deposit guarantees have also supported demand," he said.

By the end of August, housing turnover had grown to 5.6%, the highest rate since December 2009.

Queensland tops turnover rankings

Across all states, Queensland reported the highest turnover rate over the year to August, with 6.8% of properties being under transaction.

This can be attributed to the Sunshine Coast, which registered its strongest turnover level since the 12-months ending June 2008.

"The higher rate of turnover is being supported by a surge in interstate migration along with relatively affordable housing prices compared to New South Wales and Victoria," Mr Lawless said.

ACT ranked second, with 6% of its total properties exchanging hands during the period.

Mr Lawless said Canberra witnessed a substantial lift in investment activity, which helped boost the higher turnover rate.

Meanwhile, the Northern Territory recorded the lowest turnover rate at 3.7%. This, however, was an improvement from the recent low in June 2020 at 2.4%.

"Despite home sales surging almost 60% over the past year, annual sales were still 12% below the 20-year average across the NT, highlighting how strong demand has been through previous growth cycles," Mr Lawless said.

Victoria's turnover rate of 4.6% was the second lowest. The state has been adversely impacted by the lockdowns. Housing affordability was also an issue in the state.

"Also, a large number of newly built dwellings has added to the state’s overall housing supply. Over the past five years, Victoria’s dwelling count has increased by 280,900, the largest increase of any state or territory," Mr Lawless said.

Annual sales likely to moderate

Turnovers are likely to increase further as the annual number of sales has yet to peak.

Mr Lawless said turnovers might reach its highest point over the medium term in early 2022. However, he said there are signs that home sales are already easing.

The moderation in home sales might continue over the medium term due to several factors.

Affordability is on the top of the concerns as house price to household income ratio moves to new record highs across most markets.

"Worsening affordability is likely to progressively prevent more buyers from participating in the housing market," Mr Lawless said.

Furthermore, there is a renewed focus on lending standards that could potentially amplify these affordability concerns.

"With policy makers and lenders becoming more focused on the quality of lending, it’s likely borrowers with small deposits or high loan/debt levels relative to their incomes will find it harder to secure a loan," Mr Lawless said.

A lift in the overall supply of homes might also dampen the turnover rate, even if home sales remain steady.

Still, Mr Lawless believes the record-low mortgage rates and the expectations that it would be at record lows for an extended period will likely offset these headwinds.

"Longer term, a move away from property transaction disincentives, such as stamp duty, would help to support higher turnover," he said.

"It’s encouraging to see state governments in the ACT, SA and NSW transitioning away from stamp duty, albeit with different strategies and progress, which should help to remove disincentives for homeowners and prospective buyers to transact in the housing market."