Property market update: Perth, October 2021

The monthly decline did not catch the majority of industry analysts off guard, as talk about slowing growth had been proliferating across the market in recent months. 

A combination of factors, including an increase in listings in the midst of the spring selling season, the subtle tightening of credit assessments set for 1 November and rising affordability issues, which has increasingly priced out buyers from the market, are perceived as the cause for the slowdown in Perth’s growth. 

Despite the gloomy outlook, local experts are still optimistic regarding Perth’s prospects. REIWA president Damian Collins said that Perth’s affordability compared to other capital markets continues to be its trump card. 

“Perth remains very affordable overall,” he said. “In fact, we are the cheapest of all major cities around the country. With interest rates so low, people can get into a median-priced home with mortgage payments as low as $250 a week.” 

He also pointed out that Perth is off to a good start of a decade compared to the last one, noting that even if prices only grow by 4 per cent per annum over the next decade, the Perth median price would rise to $770,000. 

“If our economy stays strong and our population increases, we are likely to see a much better decade ahead than the last one,” he stated. 

Despite the perceived slowdown in growth, Perth also continues to be a favourite among property investors. According to Caylum Merrick, the finance team leader at advisory firm Momentum Wealth, a growing number of property owners are capitalising on the strong market conditions to expand their investment portfolios. 

In fact, investor loans in Western Australia climbed by 86.35 per cent in August 2021 compared to the previous year, according to data from the Australian Bureau of Statistics.

“We have also witnessed similar growth in investor demand, with many investors recognising the unique opportunity at hand to capture both growth conditions and strong rental yields, with Perth continuing to offer some of the most competitive rental yields across the nation,” Mr Merrick noted.

With all this in mind, will October mark the start of Perth’s dwelling values hitting the skids? Or will the city manage to rebound before the year ends? 

For now, let’s see how the market performed during the month. 

Property values 

Perth saw its first monthly decline since June 2020, as CoreLogic data revealed the city’s dwelling values fell 0.1 per cent in October, slowing down from the 0.3 per cent increase in September. 

Despite the decline, REIWA’s Mr Collins voiced his optimism about the city’s overall growth. “Whilst price growth was relatively subdued during October, on an annual basis Perth home values are up 16.37 per cent,” he said. 

The recent movement in housing values brought the Western Australian capital’s median dwelling values to $526,625, which still makes it the cheapest capital city after Darwin. Meanwhile, regional Western Australia values also fell 0.1 per cent over the month but are up 17 per cent over the past year.

Median values for houses saw a 0.1 per cent drop in October. Despite the monthly decline, average house prices in the city still rose to $550,044 from the previous month’s median value of $548,351. Compared to the same period last year, Perth house prices have risen by 16.7 per cent. 

Interestingly, Perth’s unit market strengthened during the same period, notching a 0.2 per cent increase in October. Median unit values in the city now sit at $402,525. Compared to September 2020, unit prices in Perth are now up 14.1 per cent. 

According to CoreLogic’s research director Tim Lawless, the demand for units will continue to increase as houses become more out of reach for buyers. “As housing becomes less affordable, we expect to see more demand deflected towards the higher density sectors of the market.”

Meanwhile, REIWA’s data showed Perth’s median house sale price stood at $520,000 in October, with 65 suburbs recording price growth during the month.

The suburbs to record the biggest house price growth during October were Cottesloe (up 4.6 per cent to $2.6 million), Doubleview (up 2.8 per cent to $795,000), Sorrento (up 2.8 per cent to $1.15 million), Joondalup (up 2.8 per cent to $545,000) and Brabham (up 2.6 per cent to $427,500).

Perth’s million-dollar club suburbs also welcomed new members. According to data from REIWA, Perth now has a total of 42 suburbs with a median average of over $1 million, significantly higher than the 12 seen in 2010. 

Among these, Woodlands and Marmion recorded a median greater than $1 million for the first time. Meanwhile, suburbs including Woodlands, Watermans Bay, Sorrento, Mount Lawley, Ardross and North Beach recently reclaimed their million-dollar status.

Mr Collins said that the majority of suburbs on the million-dollar list owed their premium price tags to their proximity to lifestyle elements.

“These suburbs offer a great lifestyle and are close to amenities and all built out with limited new supply,” he said, adding: “Proximity to activity and lifestyle are two factors people in Perth value highly and are willing to pay more for.”

Supply and demand  

Perth’s spring selling season is in full swing, as REIWA’s data showed that 119 suburbs recorded an increase in listings for sale during October.

Mr Collins said the spring season traditionally saw more sellers come to market who want to capitalise on the increased buyer activity after the winter slowdown.

“Spring 2021 has so far continued the trend we’re used to seeing this time of year, as an increasing number of owners choose to list their property for sale, ready to take advantage of Perth’s strong market conditions,” he stated. 

At the end of October, a total of 8,620 properties were listed for sale, which is 3 per cent more than the figures seen in September, according to REIWA. 

Further analysis shows 5,838 new properties were added to the market in October, which is the highest level of listings reported in the city since May.

“This illustrates that the increase in listings during October is not because properties are languishing on the market, but because buyer demand is high and sellers are taking advantage of the favourable market conditions,” Mr Collins said.

The suburbs to see the biggest upward movement in total listings were Darch, Hillarys, Sorrento and Inglewood. 

“These four suburbs were particular standouts, with listings for sale increasing by 100 per cent or more in each area when comparing October to September,” Mr Collins said.

Other suburbs to see a significant increase in listings were Treeby, Warwick, Wembley, Langford, Jindalee and Northbridge.

SQM’s data reflected REIWA’s results, revealing that listings in the Western Australian capital rose by 8.4 per cent over the month by 1,756 to 22,623 at the end of October. Over the year, total listings are still down by 2.5 per cent.  

The surge in listings did not seem to dampen appetite for properties in the city, as buyer demand continued to be strong. REIWA data showed the median time to sell a house during October was 16 days, which is one day faster than it took in September and nine days faster than October 2020.

“Buyers are still having to act very quickly to secure a property in Perth,” Mr Collins said.

The five fastest-selling suburbs in October were Heathridge (six days), North Perth (six days), Willagee (six days), Bull Creek (seven days) and Kingsley (seven days).

Auction rates  

According to CoreLogic, around 105 properties in Perth went under the hammer throughout October, with 66 auctions resulting in a sale.  

For more updates, expert industry insights and stories about Australia’s auction markets, follow our weekly updates in our News section. 

Rental market 

Perth’s rental market saw a rebound of sorts in October due to a combination of positive flow of interstate migration and rental stock shortage. 

“We’re certainly in a significant shortage of rental stock and that’s a real challenge,” Mr Collins professed. 

Adding to the tight rental market conditions are home owners who are stuck in leases due to the blowout in construction times. According to Mr Collins, there are plenty of tenants in the market who have bought properties to build and are still sitting in their rentals.

“We’re expecting 8,000 to 10,000 to move out of their rentals so that will free up stock, but that will be drip-fed in the next 18 months,” he stated.

At the end of October, there were reportedly 2,146 properties for rent across the Western Australian capital. 

“The biggest issue facing the Perth rental market is not affordability, but a shortage of rental stock. Western Australia needs to see an influx of investors to ensure there is an adequate supply of rental stock to keep up with tenant demand,” Mr Collins explained.

But the local expert advised market watchers not to expect the city’s rental market conditions to ease once international borders open, as investors have not returned to the market at high enough levels and building activity has not kept pace with demand.

“With the WA borders set to open next year, demand for rentals will likely increase. It is imperative that investors are not further deterred from providing rentals in WA,” he stated.

Mr Collins further argued that despite Perth’s rental market being tight, tenants are capable of bearing further rental price hikes. 

“We are the cheapest place to rent relative to our income. While it’s painful for some tenants, most are able to deal with the rental increase,” he stated. 

Perth’s median rent price was stable in October, holding at $430 per week.

“In the last three months, we’ve only seen a $5 increase in rents in Perth, which is quite remarkable considering the vacancy rate remains low and competition amongst tenants to secure a rental is still high,” Mr Collins said.

CoreLogic’s data showed while gross rental yields have continued to diminish in other capital cities in October, landlords in Perth are still ahead of the rental market game. The city recorded a gross rental yield of 4.4 per cent over the month, falling only second to Darwin, who led the capital city pack with 6.1 per cent. 

On an annual basis, both average house and unit rents in Perth rose by 13.1 per cent and 12.5 per cent, respectively. 

Want to see the bigger picture of how rental markets around the country are performing? Check out our latest report on rental prices and where are the most expensive (and affordable) suburbs to rent in across Australia’s capital cities. 

Vacancy rates 

Perth’s vacancy rates hit multi-year lows in October after falling from 0.6 per cent to 0.5 per cent over the month, according to Domain.

Compared to the same period last year, vacancy rates in the city have declined from 0.7 per cent. 

Further downward pressure could be placed on the vacancy rates in capital cities in the coming months, as the economy opens more broadly and tenants face a positive outlook of fewer lockdowns and a greater sense of job security, and as interstate travel resumes, Domain stated. 

During the month, the areas with the highest vacancy rates were Perth City (1 per cent), South Perth (0.7 per cent), Cottesloe – Claremont (0.6 per cent), Bayswater – Bassendean (0.6 per cent), Belmont – Victoria Park (0.6 per cent). 

Meanwhile, the areas with the lowest vacancy rates were Wanneroo (0.2 per cent), Rockingham (0.2 per cent), Cockburn (0.2 per cent), Serpentine – Jarrahdale (0.3 per cent) and Armadale (0.3 per cent). 

What’s next for Perth’s property market? 

While most experts see Perth continuing to notch gains until 2022, one of the big four banks predicts that the city’s property boom will hit a u-turn in 2023 in the face of an interest rate hike.

Commonwealth Bank economist Gareth Aird predicts the city will see a significant decline in house prices in 2023, forecasting property values in the city to drop by as much as 9 per cent. 

“We still think prices will rise into next year, given interest rates are still very low and there’s still a pretty decent momentum behind the housing market,” the economist said. 

“But the call for prices to fall is really about 2023, and the reason we think prices are going to fall is we think the Reserve Bank will be raising the cash rate because the economy will be doing very well, and higher interest rates will mean lower prices,” Mr Aird explained. 

The chatter around interest rate hikes has been ramping up in the past few weeks, even after RBA governor Philip Lowe poured cold water on the chances of an interest rate hike in 2022 in the central bank’s latest cash rate decision, saying that Australia’s economy “still has a way to go”.

Meanwhile, some economists remain bullish about the property market’s growth prospects beyond 2022, with Bluestone Home Loans consultant economist Dr Andrew Wilson describing Commonwealth Bank’s price drop forecast to be “nonsensical”. 

While acknowledging that the market will soften in 2022 – due to rising affordability barriers and lower demand – he argued price growth would remain.

He also reiterated that the RBA itself had outlined expectations for the cash rate to remain at the current level until 2024, based on the central bank’s wage rise requirements and inflation targeting.

“For wages growth to meet the RBA requirements for a rate rise by November 2022 – the date predicted by those forecasting record price falls in 2023 – would require an unprecedented surge in incomes over coming months,” he said.

For more insights, you can also check out our article on why future interest rate rises won’t spell doom and gloom. 

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