RP DATA PROPERTY PULSE ARTICLE OF 3RD JULY 2012

3 July 2012

Property owners holding on to their homes for longer Since the middle of the last decade the average hold period of homes has continually increased as affordability barriers and high exit costs result in owners holding on to their properties rather than buy new ones. The average hold period is calculated simply as the difference between the most recent date of sale compared to the previous date of sale.  When we quote this figure we determine an average based on all of the homes sold over the past year. Across Australia, the average hold period for a house is recorded at 9.0 years and at 7.7 years for a unit.  The average hold period has continued to increase over the past year, at the same time last year the hold period was recorded at 8.5 years for houses and 7.4 years for units.  The average hold period for houses and units was fairly static until late 2005 and actually declined during the 2001-04 property boom but it has since consistently increased. At an individual capital city level, Melbourne houses and units have had the longest average hold period over the past year at 10.4 years and 8.3 years respectively.  Sydney has the second highest average hold period. Given that Sydney and Melbourne are the most populous capital cities and also two of the most expensive, it is no surprise to see that they also have the longest length of tenure.  It appears that home owners are increasingly likely to keep their current properties rather than upgrade due to the significant cost. The trend towards longer tenure is evident across each capital city market, all of which are showing an increase in the average hold period of both houses and units over the past year.  As the table shows, the average hold period across each capital is much higher than it was five years ago and substantially higher than they were in 2000. When the average hold period data is paired with the annual volume of sales data you can see that as the volume of sales has fallen the length of ownership has increased.  Of course this is a logical explanation, if fewer transactions are taking place people still need to live somewhere so they are going to be more inclined to stay in their current home. The increase in the average hold period has also occurred over more recent years, a time at which growth in home values has been significantly lower.  Of course in March 2000 median home prices were much lower than they are today which would suggest that housing affordability is a barrier to people moving and upgrading their home.  The March 2012 national median home price was $400,000 compared to $168,000 in March 2000.  Another point to note is that as homes get more expensive the amount of stamp duty payable on the sale increases as does the commission payable to the real estate agent. These may also be factors that are contributing to the increasing length of ownership. The fact that the average hold period has been increasing as homes got more expensive and the rate of capital gain slowed along with the ongoing decline in sales activity has ramifications for the market and its participants such as: There is less stamp duty collected by local and state governments because of fewer sales transactions. There is less commission available for real estate agents and mortgage brokers. There is less new business for financial institutions; as a result they have to compete more heavily in the refinance space. Many families are likely to be living in homes which don’t appropriately meet their needs. The data suggests that instead of moving people are looking to renovate their current homes. Overall, we believe that the increase in the average hold period is a response to a number of factors.  The main contributors are housing affordability and the costs associated with moving however, it also probably has to do with the fact that the type of property available and the types of new housing stock being delivered are not meeting buyers needs.  Whether that be cost, design or location it is clear the stock available is not what buyers are looking for.  We anticipate that the average hold period will continue to increase over the coming years as private sector demand for credit growth remains below historic levels, sales volumes remain below their peaks and affordability barriers mean that people choose to upgrade their current home rather than upgrade to a new one.

Best regards

Linda J. Debello

L J Gilland Real Estate Pty Ltd

PO Box 19, Zillmere 4034.

Office:- 07 3263 6085

Mobile:- 0409995578

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