Property market update: Brisbane, June 2022

The city’s shift towards the slow lane of what has been described as a two-speed market did not catch local experts off guard, with most viewing the change as a natural progression in Brisbane’s market cycle.

“It is not going to be a surprise to anyone that the Brisbane property market is starting to transition, following changes that have been observed in other markets around Australia over recent months,” Melinda Jennison, the managing director of Streamline Property Buyers, said.

CoreLogic research director Tim Lawless noted the housing market’s sharper reduction in growth comes in line with the May cash rate hike, surging inflation, and low consumer sentiment.

“Housing value growth has been easing since moving through a peak in March last year when early drivers of the slowdown included rising fixed term mortgage rates, an expiry of fiscal support, a trend towards lower consumer sentiment, affordability challenges and tighter credit conditions,” he said.

The expert added that rising inflation, which has triggered the Reserve Bank of Australia (RBA) to step in by raising the official cash rate rapidly from May to July, has added further momentum to the downward trend.

“Since the initial cash rate hike on May 5, most housing markets around the country have seen a sharper reduction in the rate of growth,” Mr Lawless stated.

He forecast that the market’s downward trend would pick up pace in the coming months as the central bank continues its monetary policy tightening in order to keep inflation within its target band of 2 to 3 per cent.

“Considering inflation is likely to remain stubbornly high for some time, and interest rates are expected to rise substantially in response, it’s likely the rate of decline in housing values will continue to gather steam and become more widespread,” Mr Lawless said.

Will Brisbane finally succumb to the end of the housing boom with a decline in property values? Or will it continue to show resilience in the face of the changing market?

For now, let’s see how the city closed out the 2022 financial year.

Property values

CoreLogic data showed that Brisbane’s dwelling values eked out a 0.1 per cent increase in June. The figures are a significant slowdown from the 0.8 per cent gain seen in May and the 1.7 per cent rise recorded in April.

Brisbane also failed to steal back the crown as the fastest-growing capital city from Adelaide, as the South Australian capital blew other capital markets out of the water with a 1.3 per cent monthly gain.

Despite the Queensland capital’s growth cooling down substantially over the month, it is still performing relatively well compared to its southern counterparts on a quarterly basis.

Over the last three months, the city’s growth is still up by 2.7 per cent. However, the figures also represent a slow down from the 4.6 per cent quarterly gain seen in May.

The latest monthly increase brought Brisbane’s annual growth to 25.6 per cent, with the city’s median value at $784,826 — the highest average value for dwellings in the city and represents a $4,934 month-on-month increase in prices.

Further indications of the city’s easing market conditions can be seen in its housing and unit sectors.

Over the month, the median value of houses in Brisbane saw no movement, flattening from the 0.8 per cent increase seen in May.

This brought the sector’s annual gain to 27.4 per cent and the average price of a house in the city to $892,133.

Meanwhile, the city’s unit sector saw a 0.8 per cent monthly increase in median values, easing from the 1.2 per cent seen in May.

Units in the city have risen by 15.8 per cent over the latest 12-month period, which brought the average price of an apartment or townhouse in Brisbane to $501,074.

Commenting on the latest data, Ms Jennison stated: “For two months, we have now observed the unit market in Brisbane outperform the housing market.

“This is in line with the demand we have been seeing on the ground for the different property types.”

She explained that units are becoming more popular among buyers as it offers a more affordable option for those who are happy to compromise on the property type to stay in their preferred locations.

Supply and demand

According to Ms Jennison, Brisbane’s strong supply and demand dynamics continue to be the cornerstone of its solid market performance.

Citing data from CoreLogic, she stated: “Supply levels, as measured by listing volumes, are still down 18 per cent in Brisbane, compared with 12 months ago, and listings are still trending well below the five-year average across the city.”

The local expert highlighted that the lower volume of properties available for sale, coinciding with a lower volume of building completions, is leaving property buyers with fewer choices and, in turn, is limiting the amount of available supply throughout the city.

Separate listings data from SQM Research showed that total residential property listings in the Queensland capital rose by 1.8 per cent from 18,313 in May to 18,635 in June.

Compared to May 2021, the number of available stock in the city is down by a staggering 17.2 per cent.

New listings (or properties that have been on the market less than 30 days) in Brisbane declined by 0.2 per cent from 7,919 in May to 7,905 in June. Compared to the same period last year, new listings in the city are down by 5.4 per cent.

Data showed that old listings or property listings over 180 days also fell by 2.4 per cent from 1,954 in May to 1,907 in June. On an annual basis, old housing stock in the city is down by 53.4 per cent.

Managing director of SQM Research stated that Louis Christopher stated that on a national level, overall stock on market fell for the month largely due to the decline in new listings due to “reduced vendor confidence in the strength of the housing market as well as seasonal factors”.

He pointed out that winter was a traditionally slow time for the market, typically characterised by a seasonal decline in residential property sales activity.

Commenting on the overall state of the market, Mr Christopher said that there is “there is no panic in the market”.

“The downturn remains orderly, but it is evident from SQM’s asking prices series vendors are adjusting their market expectations down. Meanwhile, cities still recording strength include Adelaide and to a lesser extent, Brisbane, and Canberra. All other cities are now showing signs of weakening,” he stated.

On the demand side, Ms Jennison claimed that consumer was mostly being affected by the negative narratives surrounding the market, particularly predictions of steep declines in property values.

“Whilst the RBAs interest rate hikes have been a necessary step to return rates to more normal levels, the hysteria around the reporting of these moves has created a lot of concern for many buyers,” she said.

She stated that under current conditions, more buyers are second-guessing their next step. “[A] lot of buyers feel uncertain about the future, given many reports that have been released in relation to proposed property price falls in the future,” she said.

While demand has been hit by the rising rate environment and its subsequent impact on consumer sentiment, Ms Jennison reported that there is still a sufficient level of demand throughout the city to match the properties that are coming on the market.

For more insight on the market supply levels across the country, read our recent article: June new listing activity bucks downward trends.

Auction markets

Brisbane’s clearance rate continued to slide in June, falling once more to below 50 per cent during the month.

The latest data from Domain showed the city’s clearance rate stood at 48.4 per cent in June, indicating a 2.2 per cent drop from May and 11.7 per cent down from the city’s recorded rate 12 months prior.

Out of the 557 scheduled auctions in the Queensland capital throughout the month, data showed that 15.2 per cent was sold prior, while 9.6 per cent were withdrawn.

Data also showed that the city’s house and unit sectors recorded clearance rates of 47 per cent and 58.3 per cent, respectively. The figures indicate that sectors recorded a 1.7 per cent decline for houses and 4 per cent drop for units in clearance rates from May.

Domain chief of research and economics Dr Nicola Powell said declining clearance rates across the country indicated that the prevailing uncertainty in the market is persuading sellers to close deal ahead of auction day or switch to swap tactics.

The expert added that interest rate rises over the past three months have caused the clearance rate to decline, and vendors should brace for further falls as the market continues to soften.

“We do expect to see a greater decline in clearance rates, which we have already seen since interest rates have been moving higher,” Dr Powell said.

“It’s not the only thing causing the market to slow, there have been affordability issues and an increased number of homes for sale, but it has been fuelled or accelerated by rate rises and a more wary market sentiment from buyers.”

The median auction price for houses in Brisbane stood at $1,130,000 at the end of June, indicating a 5.8 per cent fall over the month. Compared to June 2021, the figures are still up 19.4 per cent, the biggest annual increase in average price of houses auctioned among capital cities.

Figures indicate that units are the crowd favourite among bidders in the city. The unit’s median auction price stood at $680,000, representing a 13.3 per cent surge in average prices month-on-month. Compared to the same period last year, the figures are also up by 11.5 per cent.

Separate data from CoreLogic showed that 628 properties went under the hammer in the city, with a final average clearance rate of 53 per cent.

If you want to be in the loop about what’s happening across auction markets in the country, follow our weekly updates in our News section.

Vacancy rates

Brisbane’s vacancy rate remained at an all-time low of 0.6 per cent in June as the city continued to grapple with a rental crisis.

Compared to the same period last year, the city’s vacancy rate is down by 60 basis points. At its current level, Brisbane’s vacancy rate is also at its lowest point since November 2020.

Data showed that available rentals in the city declined almost 10 per cent from last month, and there’s less than half the choice as this time last year.

At the end of June, the number of vacant rental listings in Brisbane stood at 1,433, representing a 9.4 per cent drop from May and a further 51.6 per cent decline from June 2021.

Domain noted that this indicated that despite investment activity in the city picking up, it hasn’t been able to keep pace with rising rental demand.

The areas with the highest vacancy rates were Jimboomba (1.3 per cent), Brisbane inner (1.3 per cent), Sunnybank (1.1 per cent), Centenary (1.1 per cent), and Mt Gravatt (1.1 per cent).

Meanwhile, the areas with the lowest vacancy rates were Strathpine, Caboolture Hinterland, Chermside, Southport and North Lakes, which all recorded a vacancy rate of 0.2 per cent.

Commenting on Domain’s latest figures, Ms Melinda stated: “There is a city-wide rental crisis. Given the lack of rental supply, coupled with the increased rental demand, price surges have been evident across the city.”

To read more on the ongoing rental crisis, check out our recent articles: Zero vacancies: 20 suburbs where renters are in ‘desperate’ mode and How Australia’s rental market fared at end FY22.

Rental prices

Data from CoreLogic showed that low rental vacancies in Brisbane have added pressure on landlords to hike rents over the last quarter.

CoreLogic’s Quarterly Rental Review showed that weekly rents in Brisbane rose 3.9 per cent over the latest three-month period. The median rent in the city currently stands at $480 per week.

Rental prices in the city have risen by 1.4 per cent over the month and by 12.1 per cent over the year.

Compared to June 2021, house rents in the Queensland capital have risen by 13.2 per cent, while unit rents have increased by 8.8 per cent. This brought the average weekly house and unit rents to stand at $585 and $460, respectively.

In some areas, the rental increases have been a lot sharper than the average figures, with increases in excess of 20 per cent in some suburbs throughout the city.

“Such strong rental conditions through the current cycle have occurred largely in the absence of overseas migration, although the reopening of international borders is likely now adding further upwards pressure on rental demand,” Mr Lawless said.

Due to the rapid increase in rents, gross rental yields in the city notched up. Across all dwellings, gross rental yields in Brisbane are now 3.6 per cent, up 0.1 per cent from last month.

Outlook

With the market downturn becoming more widespread across the country, how will Brisbane’s property market perform in the coming months?

Mr Lawless said the market was in the “fairly early stages” of a decline, with the extent of falls depending partly on how aggressively the Reserve Bank hikes its interest rate to combat inflation.

“There’s still probably another potentially 12 months ahead of us in this downturn,” he said.

“Australia’s housing market outlook is becoming increasingly skewed to the downside, with the trajectory of housing values heavily dependent on the path interest rates take.”

Mr Lawless said that while forecasts vary significantly, it’s entirely possible the cash rate could rise beyond the pre-COVID 10-year average of 2.56 per cent.

During its July meeting, the RBA revised its inflation forecasts up from its estimate of 5.1 per cent in the March quarter to 7 per cent.

The higher inflation forecasts triggered economists from the biggest banks in the country to also update their estimated peak in the cash rate and its subsequent impact on house prices.

Generally, economists are singing the same bleak tune, with most experts predicting property prices in the country will fall between 15 and 20 per cent (depending on who you ask) over the 12 months.

But there are optimistic voices among the chorus of doom and gloom.

While the drops in property values will come to fruition as the RBA continues to hike rates, Mr Lawless explained that a fall as deep as 20 per cent would not be as detrimental to the housing market as most market analysts paint it to be.

He said that a 10 per cent decline in the market (a figure which is becoming more widely accepted across the various private sector forecasts) would take national housing values back to levels seen in July 2021.

Meanwhile, a 15 per cent decline would take the market back to April 2021 levels.

As for the gloomiest market decline forecast of a 20 per cent decline, the national index would still be at January 2021 levels and only marginally above where home values were in late 2017, he explained.

Another factor that will keep the floor under the housing market is that many borrowers have buffers against rising mortgage interest rates, as they have been making repayments above required minimums.

“[This means] most households have a significant safety net if temporarily faced with a change in circumstances,” Mr Lawless stated.

Meanwhile, Ms Jennison voiced her optimism that Brisbane will continue to remain resilient amid softening market conditions due to its solid market fundamentals.

“Whilst there are many commentators suggesting that property values in Brisbane will fall, we remain of the opinion that quality properties that are in high demand, despite broader market conditions, will maintain their value now and continue to grow in value into the future,” she stated.

For a deeper insight into how the rising rates would impact the property market and how investors can better position their portfolios for growth amid softening conditions, check out our amazing podcasts.

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