Residential sales in the capital cities slumped 24per cent in the first three months of the year as interest rates climbed and consumer sentiment collapsed.
Figures released yesterday by RP Data show that home sales in the three months to March were lower than in any quarter since before June 1999, when the real estate research firm began compiling sales volumes nationally on the mainland capitals.
After hovering below 80,000 transactions in all quarters since September 2003, sales swung above that level in the June and September quarters last year - but then local and international economic sentiment turned abruptly in December.
House and unit sales in the March quarter showed their most dramatic slide in the past nine years, falling from just under 80,000 to 58,072.
RP Data national research director Tim Lawless said borrowers were reacting to the slower economy by moving away from fixed loans, with the proportion of new loans issued on fixed rates falling from 24per cent in March to 13per cent in May. "More borrowers are selecting a variable rate of interest, which is a sign of improving confidence that rates may be stabilising," he said.
Jason Anderson, senior economist with analyst BIS Shrapnel, said sales volumes normally fell in the March quarters compared with December, but the slowdown this year was much more pronounced than usual.
A notable feature of the market weakness was that it was uniform across all capitals rather than being concentrated in Sydney and Perth, as it was last year.
Mr Anderson said there had not yet been a sharp decline in values, but prices were "pretty close to flat or marginally down" in the June quarter.
There was a prospect of "marginal, weak gains" in housing prices in the next 12months, on the back of wages and rental growth and serious housing shortages.
Rental vacancy rates in Sydney and Melbourne were below 1per cent and would remain "incredibly tight for the next 12months".
Sydney's rental market was the tightest it had been in 30years, and as a consequence rents would rise 10per cent this year and 10per cent in each of the next three years, Mr Anderson said.
Dwelling construction had slumped in NSW, down from 37,000 in 2006 to 28,300 in the year to March.
NSW's population in the 2008 financial year would grow by 80,400.
Victoria's population would grow by 82,000, but the state was keeping up with housing construction better than NSW, with 38,000 Victorian homes to be completed this year.
Slumping residential sales volumes are biting real estate agencies hard, and the effects were being seen in staff lay-offs and agencies closing their doors, said Noel Wyett, president of the Real Estate Institute of Australia.
Such a "severe decline" was certain to bring further rationalisation in the industry.
Australian Bureau of Statistics figures show 52,000 new mortgages were recorded in May, the lowest since 2004. The total value of housing finance commitments in May was $18.1billion, down $6.5billion from the June 2007 peak.
