Low confidence tied to Perth pipeline, FHB FOMO

The Perth pipeline

Mr Reardon’s primary conclusion is that low confidence in the Australian property market is creating a level of unsustainability in terms of Perth house prices, as the declines in the state have been less severe than those experienced in Sydney and Melbourne.

“At this stage, WA has population growth of 0.9 per cent [and] they’re building 15,000 homes; those two numbers don’t add up,” Mr Reardon said.

“So, the cycle of the adverse wealth effect ... where there is such a low level of confidence in the housing market that people withdraw from the market completely is what’s occurred in Perth, so they’re now undershooting.

“There’s more people moving to WA to justify a higher number of home building activity than what’s going on, which means housing debts is increasing.”

In the future, Mr Reardon said significant house price increases and building activity increases are expected, but not within the first half of 2019.

“It’s not going to be the first six months of this year because the credit squeeze has got them as well and will continue to hold that market down, even though they were kicking along on bedrock to start with,” he said.

Building activity

Another conclusion Mr Reardon came to about market confidence is that it is not solely due to people witnessing house prices declining, but cost bases rising.

This, he said, is being seen in how land prices are rising even though demand is declining, which Mr Reardon described as “perverse”.

However, he acknowledged that there is a noticeable lag in the data available.

“We would expect that land prices will come back a little over the course of the next 12 months, as that demand for land falls back,” Mr Reardon said.

“But what we’re seeing at the moment is still the flow through of the data from house and land packages, particularly in Victoria.”

FOMO

Mr Reardon added that lower confidence in the property market is de-stressing first-home buyers, alleviating their “FOMO” [fear of missing out], or concerns that they will not be able to purchase their intended property.

“There’s no FOMO. They can wait another three months, they can save a bit more money, they can afford a better home,” Mr Reardon said.