The signs of a market recovery: CoreLogic's Cameron Kusher

EXPERT OBSERVER

The national housing market has just experienced its largest downturn in dwelling values since at least the 1980s.

The fact that values nationally fell by less than 10% speaks to the ongoing strength of the housing market over the past 40 years which has culminated in Australia being one of the most expensive places in the world in which to buy property.

Since the federal election in May, there have been ongoing signs of improving market conditions.

This has been driven by a number of factors including: an unexpected win by the Coalition in the federal election which removed uncertainty about changes taxation policies relating to investment, two 25 basis point cuts to interest rates, tax cuts for low income earners and an easing of some of the previous lending restrictions that were in place.

While there are clear signs of improving conditions, many point to the fact that the very low volume of sales in the market indicate that the recovery is not real or unsustainable.

While that could very well prove to be true if/when stock levels rise, the truth of the matter is that in a downturn, sales volumes typically fall and subsequently, the early stages of a housing recovery are usually characterised by low volumes of sales.

The above chart shows the monthly volume of settled sales for dwellings nationally, together with the rolling three month change in dwelling values nationally. The dotted line represents 0% change, so anything below means that values are falling and anything above is indicative of growth. What becomes quite clear from the data is that when values are declining, sales volumes typically fall and increasing values typically leads to higher volumes.

What is also evident is that 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. Even recent examples in 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 where housing conditions are improving following a sharp downturn.

Another way to look at how a housing market recovery starts out with low sales volumes is the auction market.

Coming out of the Global Financial Crisis (GFC), values nationally started to lift in January 2009. Equally, the above chart shows how auction clearance rates bounced however, this bounce occurred with very low volumes of auctions taking place.

Equally, the housing recovery which started in early 2012 saw a relatively low number of auctions occurring right through until early 2013. It is a similar story right now with auction clearance rates having bounced higher since the middle of May, yet the volume of properties going to auction remaining quite low.

Finally, you can only really take to auction or purchase what is available for sale. One of the major reasons why transaction volumes remain so low is because there is very little actually available for sale. The number of new listings nationally (new listings are anything not previously advertised for sale over the past 6 months) are the lowest they’ve been at this time of year for many years and are -18.9% lower than they were last year.

Total listings are also lower than they’ve been at this time of year for many years and are -4.4% lower than they were a year ago.

Auction volumes have certainly fallen much more than volumes in the general market however, as housing market conditions have softened, vendors have become much more selective about which properties are appropriate to be taken to auction.

Notwithstanding that, as we have seen in the past 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 that which is actually available for sale and at this point there is not a lot of stock available for sale. Of course 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.

CAMERON KUSHER is the head of research for the Australian branch of CoreLogic

Kusher regularly posts on the CoreLogic website.