Home sales in Sydney are falling sharply

• Home sales in Sydney have fallen to the lowest level in over 15 years.

• Beyond the fact that Sydney home prices are expensive, even with recent price falls, there are a number of other factors that explain the drop in turnover levels in recent years.

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The combination of falling home prices and tighter lending standards has seen home sales in Sydney fall to the lowest level in over 15 years.

As seen in the chart below from Commsec, using data from the ABS Residential Property Price Index released today, home transfers in Australia's largest and most expensive housing market slumped last year to the lowest level since early 2003.

Image: Commsec

The steep fall in turnover reflects a variety of factors, ranging from affordability constraints, more recently as a result of tighter lending standards, as well as weaker demand from local and foreign investors. There is also less urgency for prospective homeowners to buy at a time when prices are falling.

On the supply side of the equation, weaker prices may also be discouraging owners from listing their property. According to latest data from CoreLogic, new listings -- defined as homes that have not been put up for sale within the past six months —- slumped by 20.9% last week compared to the same period a year earlier.

With turnover in the Sydney market falling sharply, the subsequent decline in stamp duty receipts is weighing on New South Wales state government revenue.

It also goes someway to explaining why retail sales in New South Wales have been soft, limiting the need to purchase household items to fill a new home.