Melbourne transaction numbers slowly rising: RP Data's weekend auction preview

While it’s often not obvious, a sign of a poorly performing property market can be a low level of residential sales.

It reflects a low level of confidence; owners may be relucent to sell for fear of achieving a low price and buyers may also be reluctant to make the significant commitment that is required when entering into a home loan.

Low transaction levels have a range of negative consequences; professions related to property suffer, state government incomes drop and buyers can find it more difficult to find the right home due to a lack of choice. It's the reason why the number of transactions is an important metric to follow if you are interested in the state of the market – sometimes it can be even more important than prices.

For the Melbourne market, the current level of transactions suggests a healthy market below its peak. The first indication of this is that home values are at a peak in nominal terms but are still around three years worth of inflation below their value in real terms.

The second indication is that the overall number of settled sales at the end of April was only 1.3% higher than a year ago. This is better than 2012 by a reasonable 4.4% but well below the all-time record in 2007 when there was 105,194 sales in Melbourne and four months into this year we are still 22.2% lower.

This data may be surprising to anyone who has seen the record number of auctions this year but as that only accounts for around 31% of sales it can’t provide an accurate picture of the entire market.

As volumes rise, there are 665 auctions scheduled this week in Melbourne compared to 637 for the same time last year.

The market returned to trend last week following the aberration the week before. Along with an increase in volumes, demand continues to build slowly  in the lead up to spring when buyers will find more choice at auctions and improvement for the range of homes on offer.

On a Melbourne-wide basis, the number of days houses are taking to sell by private sale remained above 40 over the last week, higher than was the case over much of summer and autumn. The likelihood of the private sale market tightening substantially will be mitigated by the lack of growth in buyers based on mortgage market activity.

Key data

• Clearance rate week ending 20 July: 68.4%
• Melbourne auctions expected week ending 27 July: 665
• Melbourne private sales time on market week ending 20 July: 43 days (houses)
• Melbourne vendor discounting market week ending 20 July: -5.2% (houses)
• Listings being prepared for market are 0.5% lower in month ending 20 July (seasonally adjusted)