November 14, 2019 by Dymphna

Why it sucks to be a real estate agent right now

The low volume puzzle remains one of the markets great unsolved mysteries.

It’s still a tough time a real estate agent.

Despite the property market clearly turning, despite auction clearance rates getting back up around boom-time levels, despite all the partial indicators of property pointing towards a very strong 18-months to two years, it’s still a tough time to be a real estate agent.

And that’s because people just aren’t selling their houses.

There just aren’t a lot of properties on the market. There aren’t many properties changing hands.

This is still one of the great puzzles of the property market. Why are volumes so low?

In fact, property sales as a share of the dwelling stock, are at the lowest levels EVER!

(Well, in the 25 years since records began, anyway.)

And you’ll not there that there’s been no pick up in recent months, despite the property market clearly turning.

If anything, you might even say that the fall has been accelerating.

What’s going on here?

The REA group – the News Corp controlled company that manages and some other property-related vehicles – reckon it knows the answer.

It’s the government.

They just posted some pretty poor profit results, and they’re blaming the government for “manufacturing” the collapse in volumes:

The CEO of property listings portal, REA Group, has lambasted APRA’s macro-prudential curbs and state governments’ foreign buyer stamp duty surcharges for causing a “manufactured” collapse in property sales:

The News Corp controlled property listings portal’s first quarter trading update on Friday revealed a 9 per cent decline in revenue after broker commissions fell to $202.3 million and a 14 per cent fall in earnings before interest, tax, depreciation and amortisation to $114.9 million…

“It’s about as bad as it can get … It’s the worst market we’ve ever seen,” Mr Wilson said…

National listings fell 15 per cent over the three months to September 30, with a 22 per cent drop in Sydney and a 21 per cent decline in Melbourne.

“That quarter, the fact the residential and development and mortgages (declined) , to have that kind of a perfect storm … we haven’t seen that within 30 years,” he said. REA’s share price dropped 2.8 per cent to $103.72 by 10.29am on Friday…

“This was a manufactured downturn,” he said…

I think he’s (probably deliberately) confusing two things here. The first is the most recent downturn in prices – that was definitely caused by government intervention and APRA restrictions on lending.

But we’re not talking about prices. We’re talking about volumes. And volumes have been falling since 2005.

They’re different things.

And I’m not 100% sure why volumes remain low, but I think the answer lies in the question “Why would you sell?”

I mean, when interest rates are falling, your property prices are going up, your serviceability burden is falling, and your cashflow position is improving.

Property, as an asset, just looks better and better. So why would you sell. You’ll free up some capital (to invest in what?) but your cashflow position will probably get worse.

So why would you sell?

(I’m not.)

I think the fall in volumes reflects just how well property has performed relative to other asset classes, and how well it is likely to continue performing.

All this creates an artificial shortage of properties on the market, which, ironically, pushes prices higher. It is a self-fulfilling prophesy.

But whatever the case, I have a hard time believing that the fall in volumes has anything to do with the government, or there’d be much they could do about it even if they wanted to.

As I said, tough time to be a real estate agent.