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

In May, there were 39,790 estimated sales 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.

Historically, more properties tend to be purchased when property values are rising. With both sales and values 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, as 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 more risky.

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

Australia’s ‘turnover’ rate (how much of the country’s housing stock is sold) bottomed out in mid-2019 at 4.0%, which also marked the trough of the previous dwelling price cycle. Additionally, the national turnover rate hit a decade high of 6.2% through the recent peak growth period in 2021. At the end of the March quarter, turnover had eased to 6.0%.

In recent weeks, new listings have been rising, and auction numbers spiked at the end of May, following volatility amid the federal election. But listings volumes may also eventually ease, as vendors become reluctant to sell in a falling market. The relationship between listings volumes and the change in housing values is less strongly correlated than with sales and price movements, but advertised stock will generally trend lower during housing market downturns.

In a way, lower advertised listings during price falls points to an element of stability in the housing market over time. As long as potential home sellers are able to meet their mortgage repayments, there should be relatively low instances of forced sales. Instead, more sellers may choose to hold their property during a downswing, and try to list when they can capitalise on higher prices.