Just What Is Sales Volume?

How sales volume can unveil the market dynamics of a particular property market.

Jacob Field Published by Jacob Field on 14 January 2022

When we look at sales volumes, we are tracking the number of actual sales in a geography over a set period of time.

So let me break that down .

We are looking at four quarters in retrospect. We’ve got a number of sales all over the place over that period of time.

Now, when we are looking at sales volume, we are literally just counting up the sum of sales over a set period of time.

We’re looking at quarters in retrospect, and we are just summing them up. So the sales volume for each of those quarters is a sum of the parts.

We classify a property going unconditional as the sale event. So if that sale occurs as unconditional in quarter one, the sale belongs to that quarter now. We don’t just look at the actual value however.

We look at the trend line. Eg We’ve had a 33% increase in sales volume.

It’s not just the actual value that we look at. It is the rate of change and the direction of sales volumes as they’re travelling over time.

Once again, if this is fluctuating greatly, it might be a lower sample size.

There might not be many sales in that suburb, so to get a reliable sales volume figure, we might have to go up to a larger geography, go up to the local government area level just to stabilise our assessments of sales volume in suburbs where we have strong turnover in property, lots of sales volume can be quite accurate the suburb level.

But in some suburbs where we have, 10 or 20 or 30 sales per annum, quarterly sales volume data is inherently inaccurate or volatile.

So once again, we’re not just assessing the actual sales volumes in any given period.

We are assessing the direction our sales volumes increasing over time or decreasing, and the rate of change.

If sales volumes on a year by year basis are generally over, the long term increasing and then slowing down when you dive into that might be year on year sales volumes, and are much more stable. Sales volume curve because we have larger sample sizes to consider.

If we then break that down into weeks or quarters or months, it’s a much more volatile picture. 

So sales volumes may be fluctuating more greatly when you’re looking at smaller timeframes throughout that larger period. Now, in this case, we have sales volumes increasing rapidly, and then they reach as a high point.

Sales volumes are increasing rapidly, and then they might slow down and sales volumes might retract, and then they might recover again.

So when we’re actually looking at sales volumes to determine if an area potentially has a lot of potential or a good sign of imminent and strong price growth. It’s not necessarily the sales volume number that we look at because different suburbs transact at different levels.

You know, some have longer tenure times and others have shorter. We look at the rate of change of sales volumes and the general direction that it is heading in.

So we look at the times sales volumes are increasing rapidly here, and then they slow down and then they cross over the longer term moving average.

So this wavy line here might be a month into month, and the longer term moving average might be year into year. And when the monthly sales volume figure crosses back down below the yearly figure, it’s signifying that is, in a trend, a downward trending environment in a short time frame.

And then we look forward to come back and to cross back over the longer term trending average, and that signifies to us that we are in a nice, upward trending direction with forward momentum into a market.

So we are looking at the crosses between these short and the longer time frames to indicate market momentum and we are also then assessing the rate of change. 

You know where one month is five and the next month is five. This might be one month is five and the next month is eight sales. We’re very moving fast quite quickly. The difference between five and eight sales in that period is the rate of change, and we’re looking for a larger number there. 

It’s not just the actual value, it is the direction that sales volumes are trending and the rate of change and we look at the direction and the rate and change, particularly when we are trying to find areas with strong and an imminent signs of outstanding growth.

Now, the reasons behind that are we are looking for areas that are undergoing a shift right.

If we have very high sales volume, very healthy market, the market is turning over.

That might mean a lot of people are moving towards the area, but it takes dramatic changes in an area to generate strong and prolonged price growth, not just the fact that lots of people are moving towards the area because there might be lots of other properties that have been sold or position for sale in the market.

High sales volume is also met with supply. That’s probably leads to another really important point.

Sales volume is a demand side.

Metric sales volumes just give us a signal around the level of demand that is resulting in a sale in the area. It’s not really helping us understand if that demand is being met with supply.

So looking at sales volumes as high is not really showing us the whole picture.

When we are seeing sales volumes increasing over time, then that would be a signal that demand is also increasing over the time and that rate of change that increase over time shows us that something is going on here.

That’s really important, and that warrants further investigation.

Now it’s outside the scope of this blog, but it is relevant to consider days on market as well. There is a relationship between sales volumes and days on market and that’s getting to the real heart of tracking the balance between demand and supply and is this market tightening or expanding?

So, just to reiterate, we don’t necessarily look at sales volumes in isolation.

It’s helpful but that data shows us part of the picture. We don’t look at a contraction in days on market in isolation, either. It’s helpful, but it’s only part of the picture.

We look at a combination of both factors to look at the days of supply remaining for purchase in an area that gives us a really good understanding of the sales volume been matched with supply?

Because if we have all of this supply, all of these new houses being built in the area, we might have a situation where supply with sales volumes are increasing, but days on market might be increasing as well. All the properties that are selling in greater quantities have been met by all these new properties, and they’re all sitting around on the market.

So we might actually be an environment where both numbers are increasing at the same time, and that’s not necessarily causing a tightening or constriction in the market that might result in price growth.

What we need to look for is sales volumes increasing and days on market at least flat, if not decreasing at the same time.

So the sales volumes are pulling more and more quantum, larger volumes of properties out of the market that are not being replaced.

The level of the days of supply that exist in that market is decreasing. And that’s where we start seeing the tightening in the market. So once again, I might summarise. It’s the rate of change and the velocity of change which are the important factors that we look at and sales volume volumes, whilst useful, only provide us part of the picture.

We do need to look at other supply side signals to determine if this market is about to tighten and about to grow in value strongly. Stay tuned for more insight via our blog page!