Property price declines are no longer accelerating in Brisbane

Segmented market in Brisbane

The market has been segmented in Brisbane over the last few months, with unit values remaining relatively resilient compared to house values. This is possibly due to the fact that houses had a much stronger period of growth during the recent bull market. From January 2020 (pre-COVID-19) through to the peak in June 2022, Brisbane houses grew 42.7 per cent, according to CoreLogic data. And from September 2020 (during the first wave of COVID) through to July 2020, Brisbane units grew 20.6 per cent. This was the fastest lift in prices in over two decades. Since reaching the peak, the median value of Brisbane houses has retracted -9.6 per cent, whereas the median value for units since the peak has changed only -1.7 per cent. 

Based on CoreLogic data, Brisbane houses have still demonstrated growth of 33.1 per cent since the start of COVID and Brisbane units have grown 28.9 per cent since COVID first hit. The performance of both segments of the market has been very strong until recent months.

With the Reserve Bank of Australia hiking interest rates for eight consecutive months, we have now seen the official cash rate reach its highest level in a decade. With another 25 basis points rise on 6 December, the official rate now sits at 3.1 per cent. This has had a marked impact on buyer sentiment and borrowing capacity, thus impacting demand in some areas in recent months.

Population growth

At the same time, Queensland has experienced the highest rate of population growth compared to all other states and territories over the year to March 2022. According to Australian Bureau of Statistics (ABS) data, population growth figures were at 1.8 per cent, which is equivalent to 92,000 more people over the 12 months period. This is the highest level of population growth throughout Queensland since 2012. The large majority of this growth occurred due to interstate migration, with a net figure of around 54,000 more Australians moving to Queensland over the last 12 months. 

Rolling annual interstate migration (Australian states)

Interestingly, departures from Queensland actually declined marginally over the last two years, an effect perhaps due to lifestyle changes off the back of COVID — especially for southerners looking to relocate.

A higher volume of people moving to a given location puts pressure on housing market conditions. Whilst the rising interest rate environment and inflationary pressures may have impacted demand in some ways, the increasing number of people relocating to Brisbane and surrounding areas has also helped to maintain the levels of demand in some areas. It is important to remember that there are a number of variables that impact on the demand for property in any given market.

What is the driving force?

Data from the ABS relating to internal migration in the year to March 2022 showed that 47.8 per cent of interstate migration to Queensland was from NSW.  A further 27.9 per cent was from Victoria. The relative affordability of housing across Brisbane compared to Sydney and Melbourne has been described as one potential pull factor.

The latest CoreLogic data shows the median house price in Sydney is $1,243,126, and in Melbourne, it is $915,005. The median house price in Brisbane is just $798,552. The premium on the median Sydney house value is $444,574, and the premium on the median Melbourne house value is $116,453.

Another alternative driving force might be improved job opportunities. The annual jobs growth figure for Queensland was 4 per cent in September 2022, which is well above the 20-year average of 2.4 per cent. Also, the work-from-home shift perhaps made some areas in Queensland more attractive for those from other states who no longer had to commute into an office environment each day. The adaptation to remote work may have allowed more Australians to relocate to lifestyle locations for this reason.

Dwelling prices in Brisbane

Throughout November, the median value of dwellings in Brisbane declined -2 per cent, according to CoreLogic. This is comparable to last month, so there is no further acceleration in the median value changes. The annual change is still +3.3 per cent for Brisbane dwellings. The median value of a dwelling in Brisbane is now $715,130.

Source: CoreLogic

PropTrack data reports a much more modest change in Brisbane property values during November. The PropTrack HPI model uses a hybrid methodology that combines repeat sales and hedonic regression. This is designed to estimate the change in property values in a way that is not affected by the quality and location of the sample of homes that transact in a given period. 

The PropTrack data reported a decline in the median price of Brisbane dwellings of only -0.04 per cent and placed the median at $721,000 for all dwellings in Brisbane. This data suggests that the annual change in Brisbane has been +4.72 per cent.

Source: PropTrack

Brisbane house prices

According to CoreLogic, the median house value in Brisbane declined -2.2 per cent in November. This is the same as last month — again confirming there is no further acceleration in price declines in Brisbane. The annual change for house values is +2.2 per cent. The median value of a house in Greater Brisbane is now $798,552.

Source: CoreLogic

Brisbane unit prices

During November, the median value for units across Greater Brisbane declined -0.5 per cent, as reported by CoreLogic. This was an improvement from last month when unit values declined -0.9 per cent. Over the last 12 months, Brisbane units have grown 8.9 per cent, reaffirming the fact that this part of the market has been far more resilient over recent months. The median value for a unit in Brisbane is now $492,481.

Source: CoreLogic

Brisbane rental market

Vacancy rates in Brisbane, according to SQM Research, are currently at 0.8 per cent. This is a reflection of the current tight supply of rental properties throughout the city.

Rents are still rising due to this low supply and heightened demand. With population growth pressures, this adds to the rental demand as well. Brisbane has had the highest annual change in house rents (up 13.4 per cent) and the second-highest change in annual unit rents (up 14.3 per cent). These rental price increases have also helped to offset the increasing costs for property investors, with rising interest rates over recent months.

Source: CoreLogic

Rental affordability is becoming a concern throughout Brisbane in lower-income households. Due to the recent sharp increase in rental prices, the portion of income required to service a new lease on a house in Brisbane hit a record high in September 2022 at 32.1 per cent. It is important to note that not all submarkets are becoming unaffordable, as this is dependent on the incomes of the demographic group in a particular location.

Proportion of incomes required to service new rents (Qld SA4 submarkets, dwellings)

There is not a lot that can be done to expand the rental supply in the short term, so we expect that rents in Brisbane will continue to rise in the future, especially if migration levels remain high.

Summary

We remain optimistic about Brisbane property values throughout 2023. We have seen median values retract throughout the latter months of 2022. But, based on our on-the-ground observations, we believe some of the trends are a reflection of what is selling, more so than a reflection of every property in the Brisbane market.

The uncertainty in relation to buying in a higher interest rate environment appears to be easing for Brisbane buyers. We expect buyers who have been taking a wait-and-see approach will re-enter the market once interest rates stabilise early in 2023.

We remain in a tight supply market in Brisbane, especially for quality properties. Unless there is a reason to sell, a lot of sellers are also taking a wait-and-see approach. 

There is no evidence of forced selling en-masse that we are seeing throughout Brisbane. This would be necessary to see a large spike in supply, which could cause further price falls in some areas. There will always be some people who choose to sell if the cost of holding their property becomes cumbersome. But we do not expect this to be a common theme — especially in areas where people live in their homes and those people have the incomes to support the repayments.

This is why understanding market fundamentals is important, especially for property investors. When you choose quality properties in locations that have a lower risk of mass selling in times of uncertainty, you de-risk an investment portfolio. It is why we only ever recommend properties in areas where the demographic who live there have incomes much higher than the Queensland state average. Not everyone who owns property will find it difficult to service higher repayments.

As we head into Christmas, we expect new listings to dry up as the real estate industry takes a much-deserved break over the festive season. After the madness of 2021, where most of us in the industry worked straight through Christmas and New Year, we are all looking forward to some downtime with our friends and families.

By Melinda Jennison – Streamline Property Buyers