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Sales and listings tipped to decline amid softer housing market conditions

Key takeaways

The number of sales and listings that take place nationally is tipped to fall from recent highs.

Rising interest rates tend to put downward pressure on property prices.

Lower advertised listings during price fall point to an element of stability in the housing market over time.

As the Australian housing market enters a downturn phase, the number of sales and listings that take place nationally is tipped to fall from recent highs.

In May of 2022, there were 39,790 sales estimated to have settled across Australia.

While that is high for this time of year, it is 26.9% lower than in April of 2021.

In fact, monthly sales volumes across Australia have generally been trending lower since November last year.

House Sales

Sales move with housing values, interest rates

Historically, sales volumes and housing market growth have trended together.

Figure 1 shows seasonally adjusted, monthly sales volumes across Australia against the monthly change in dwelling values.

The two series are correlated, suggesting that more properties tend to be purchased when property values are rising.

Fig01

With the two metrics broadly moving in line with one another, it is hard to determine which of the two factors is a leading indicator of market conditions.

On the one hand, a decline in sales numbers reflects a decline in demand, where the absence of buyers forces vendors to lower their prices.

On the other hand, falling prices can reinforce lower sales numbers, because property price falls may deter buyers who consider purchasing in a falling market riskier.

An important factor at play alongside this relationship is interest rates.

Figure 1.2 shows the same data as Figure 1, but with the monthly RBA cash rate setting overlayed.

Interest rates also influence the number of buyers in the market, because higher interest limits borrowing capacity.

For this same reason, rising interest rates tend to put downward pressure on property prices.

CoreLogic has previously written about the inverse relationship between the cash rate and the CoreLogic Home Value Index.

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