House sales slump 25%

• Ben Schneiders-The Age
• December 20, 2008

BUYERS kept their hands in their pockets in 2008, scarred by a worsening economy, volatile interest rates and concerns about poor levels of housing affordability.

The number of sales tracked by the Real Estate Institute of Victoria is down 25 per cent on the same time a year ago — returning sales to 2006 levels — while the number of auctions has fallen nearly 8 per cent.

There will be a final rush today and tomorrow — the last big selling weekend of the year — with the REIV expecting about 200 auctions and 500 private sales.

If recent weeks are a guide, sales are likely to be poor. After averaging 82.5 per cent in 2007, clearance rates have averaged 63 per cent this year, and have been barely above 50 per cent in recent weeks.

There are signs the upper end of the market is in sharp decline, while cheaper property has been in more demand, helped by a boost to the Federal Government's first home buyers' grant and a steep fall in interest rates.

The ANZ Housing Snapshot for December said 15 of the top 20 growth suburbs in the September quarter were in suburbs where prices were below Melbourne's median.

Most surveys point to a small fall in prices during 2008, although REIV research has indicated a bigger fall.

The ANZ's head of property and financial system research, Paul Braddick, said the Melbourne market was in for another choppy year in 2009.

He warned that prices could fall by as much as 5 per cent in the first half, but when the financial crisis settles, prices could rise solidly.

"We are reasonably confident that once the overall macro (economic) situation becomes clearer and the uncertainty passes, that prices could recover quite quickly," he said.

Helping the market to recover is a housing shortage and a fall in interest rates.

The Reserve Bank has cut rates from 7.25 per cent in September to 4.25 per cent. This had helped housing affordability — which was at record lows for most of 2008 — return to 2002 levels, Mr Braddick said.

That is still much less affordable than the mid to late 1990s, but a vast improvement. The big unknown for property in 2009 is the depth of the economic slowdown.

Mr Braddick said the difference between his forecasts and those of economists such as Steve Keen, the University of Western Sydney academic tipping a 40 per cent decline in prices, centres on their different views on the economy.

Associate professor Keen has warned of a downturn of Great Depression-style dimensions, while most market or bank economists are forecasting a sharp slowdown or shallow recession.

"That's probably one of the biggest risks out there," Mr Braddick said. "How many people do find themselves unemployed."

SHAPE OF THE MARKET
                                2007         2008

Clearance rate        82.5%        63%

Sales                       56,189       42,465

Auctions                  29,909       26,600

Median price           $485,000   $435,000*

SOURCE: REIV (*Compares December 2007 with September 2008)