Housing turnover – time to review and the impact on village sales

Most salespeople claim that selling the family home is the greatest obstacle to achieving ILU sales in today’s market. Is this true and is it likely to change?

The challenge it seems is getting the price that potential residents believe their homes are worth – or at least an amount that gives them enough money left over after buying the village ILU to have a nest egg for a rainy day.

So what is happening to house prices? You will read that in the seven months January to July capital city home prices have dropped 2.6%. But this is heavily weighted to the top 20% of suburbs where the drop has been 7%. The bottom 80% has barely moved at all. And remember, 90%+ of village homes are priced below $500,000. So there is little movement down in home pricing for potential village residents.

Turnover however is drastically down. In 2004, 1 in 12 homes sold every year (8.3%). Today it’s 1 in 15 (i.e. 4%). So people are not moving – so demand has declined. Even new homes are down – with last month having the second lowest turnover in 11 years. It’s likely to stay at this level, but so are house prices.
Potential village residents cannot look to prices returning to 2010 levels. Salespeople have to provide proof to potential residents of the new reality.
And respected economist Saul Eastlake of Bank of America Merrill Lynch is providing it.

He points out that prices of Australian homes rose 142% between 2000 and 2010 (that’s 9.5% p.a.). Since then they have fallen 7% nationally (Brisbane 12%, Melbourne 11%, Perth 9%, Sydney 5%). He believes prices are now at a place we can afford long term, based on household income and mortgage rates. The median house value is now 4 times average annual disposable income – and its been sitting there since 2001.

Eastlake now predicts rises of 3-4%p.a. going forward, in line with inflation. He says there will not be another structural interest rate change. Household income also will not increase dramatically given the stalled resources sector.

Our McCrindle Baynes research, which included 2,700 residents that have moved to a village in the past 2 years, reveals that ‘health’ was the dominant driver – its impact required them to sell the family home and find an alternative. 54% moved within 12 months of the ‘health’ challenge. In other words, no matter the value they get for their home, they have to move.

So what does this mean for village sales? One thing that is not growing is the number of villages – especially in metro areas. Demand will increasingly exceed supply thanks to health. Stockland and others are increasing prices and operators are increasing DMFs without pushback – people have to move. It is more a matter of getting the right message out there. Remember, we have 2,500+ people each day looking for an accommodation solution on our web site villages.com.au yet only 33 ILUs sell each day. The demand is there.