Property price declines are slowing down in Brisbane

At the beginning of 2022, commentators were predicting strong price gains for Brisbane throughout the year. Then Brisbane experienced another huge flood event in February 2022, which was the first sign of any market change since the post-COVID-19 boom. Then the federal election caused some buyers to pause and wait. 

We then saw global supply chains tightening rapidly, and inflation escalated quickly. This meant the Reserve Bank of Australia (RBA) reacted by increasing interest rates well before they had originally anticipated.

Over a period of eight months throughout 2022, we experienced the fastest monetary tightening cycle since 1994, with rate increases totalling 300 basis points.  This, combined with the not-surprising negative mass media response, resulted in a dive in consumer confidence. Ultimately, this changed the trajectory of many property markets throughout Australia.

What is interesting is that the fundamentals for each specific property market over this time, and still today, remain somewhat different. Australia is not one property market, and as we have pointed out previously, Brisbane is also not one single property market. The fact is that each region is made up of many smaller micro markets that each responds to the changing macro conditions in very different ways.

Yet so many people rely on large macro data trends, then apply those trends equally across the board. This is a mistake that we have seen many less-educated buyers make. Those of us who have been invested in property for decades know and understand how to interpret the data trends and overlay those with the qualitative analysis based on our on-the-ground experience as well.

The fundamentals in Brisbane

Despite what you may have read or heard through other sources, the fact is that in November 2022, there were a total of 21,049 properties for sale across Greater Brisbane, according to SQM Research. If we compare these figures to November 2019, prior to the pandemic, Greater Brisbane had a total of 33,205 properties for sale. This is a decline of 36 per cent! 

According to SQM Research, on 1 December 2022, Brisbane had a total of 5,510 properties available for rent. Three years earlier, on the same date in December 2019, there were a total of 10,554 properties available for rent. 

This represents a decline of available rental properties across the last three years of more than 50 per cent!

At the same time, Brisbane has experienced very strong population growth, as discussed last month. Sales volumes are still above the five-year average for Brisbane, despite being down 11.4 per cent year-on-year, according to CoreLogic. This is different to cities such as Sydney and Hobart, where sales volumes have now dropped below the five-year average. 

This means more people are still transacting in property sales than the long-term average, but fewer properties are available for sale or for rent in Brisbane. These are very strong fundamental drivers for maintaining the balance between supply and demand, which is a concept we discuss regularly in our monthly updates.

Additionally, the current national unemployment rate is 3.4 per cent, which is the best it has been since the 1970s. Queensland has seen a huge improvement in job opportunities, with jobs growth in September 2022 at 4 per cent. 

This is well above the 20-year average of 2.4 per cent. These strong employment figures will help to contain mortgage stress levels for a lot of households.

Nationally, wages growth saw an increase of 1.2 per cent in the September quarter to the highest level in more than 10 years. Households, in general, have a very strong equity position, with house prices increasing in the majority of locations across the country over the last three years.

Despite eight official cash rate rises throughout 2022, several banks recently confirmed that their customer mortgage arrears remained at record lows throughout 2022. We will watch with caution as it has been reported that 35 per cent of outstanding housing credit is on fixed terms at the moment. Also, approximately two-thirds of these loans are set to expire in 2023.  

Borrowers with fixed loans that are expiring this year will be refinancing to variable mortgage rates that are likely to be 3 to 4 percentage points above their original rate. Not all borrowers will be impacted in the same way, but this might stretch some people. We expect those on lower incomes who stretched to their capacity to buy might struggle. This is something to watch as 2023 unfolds.

Finally, let’s not forget the tens of billions of dollars in infrastructure spending by private companies as well as the government, building a better Brisbane that will be ready to host the 2023 Olympic Games.

There is a lot to get excited about for the future, especially in Brisbane. The question to ask is, why is there such a lack of confidence right now?

What might cause consumer confidence to recover faster?

Decisions by the RBA and the way in which the media will report any changes in credit policy will likely play a big role in the levels of consumer confidence throughout 2023. Now, borrowers are still being assessed on repayments that are 3 per cent above the actual interest rate offered at the time of applying for a loan. 

Whilst this policy made perfect sense when interest rates were at record lows, there are now several commentators calling for an easing of the assessment rate.  This will ultimately free up additional borrowing capacity for people looking to apply for a loan. This would mean easier access to finance for people looking to refinance or those who will be purchasing a home or an investment property in the future.

Time will tell if there is any change to these assessment rates, but we eagerly await any updates throughout 2023.

Dwelling prices in Brisbane

Throughout December, the median value of dwellings in Brisbane declined 1.5 per cent, according to CoreLogic. This is a slowdown in the rate of decline compared to the last two months, perhaps indicating that the largest median value declines are now behind us. The annual change for Brisbane Dwellings is now down 1.1 per cent. The median value of a dwelling in Brisbane is now $707,658.

The PropTrack data for December reported a slower level of decline in the median price of Brisbane dwellings of only 0.18 per cent and placed the median at $716,000 for all dwellings in Brisbane. This data suggests that the annual change in Brisbane has been +2.18 per cent.

Brisbane house prices

According to CoreLogic, the median house value in Brisbane declined -1.7 per cent in December. This is lower than the last two months — again confirming that the worst might now be behind us. The annual change for house values in Brisbane is -2.5 per cent. The median value of a house in Greater Brisbane is now $786,198.

Data from PropTrack shows that Brisbane house prices declined only slightly for the month of December, with -0.19 per cent change. This data indicates that the annual growth for Brisbane houses is still positive at 1.6 per cent.

Brisbane units prices

During December, the median value for units across Greater Brisbane declined -0.4 per cent, as reported by CoreLogic. This is an improvement over the last two months when unit values declined -0.9 per cent and -0.5 per cent, respectively. 

Over the last 12 months, Brisbane units have grown 6.7 per cent. This is evidence of the fact that the unit market in Brisbane has been far more resilient than the housing market over recent months. The median value for a unit in Brisbane is now $492,059.

PropTrack data for Brisbane units for December shows a change in the median value of -0.08 per cent, and the annual change for units as reported is 6.13 per cent, which is similar to the data reported by CoreLogic.

Brisbane rental market

Vacancy rates in Brisbane, according to SQM Research, remained at the very low rate of 0.8 per cent in December 2022. This rate has remained unchanged since September 2022, reflecting the consistency in relation to the tight supply of rental properties throughout the city.

House rents appear to be stabilising in Brisbane, although growth in rents still tops the nation for capital city locations. Last month, we saw the annual change in rent for houses in Brisbane at 13.4 per cent, and this month it has eased slightly to 13 per cent annual growth. 

Unit rents in Brisbane still appear to be on the way up, with annual growth increasing from 14.3 per cent last month to 15 per cent this month. Brisbane has experienced the second-highest growth in unit rents across the capital cities, just slightly behind Sydney, which sits at 15.5 per cent growth in this segment of the market.

The high rental income growth in Brisbane, combined with the easing of median property values, means gross yields for investors continue to improve across the city.

Summary

We expect 2023 to be a normal year for the Brisbane property market. We do not expect prices to drop significantly at this point in time. We also do not expect prices to rise rapidly in the months ahead. Whilst the fundamentals remain strong, it may take some time for consumer confidence to return. This is likely to be once interest rates find their new level and people have confidence in their outgoing expenses.

However, we also expect some segments of the market to outperform others. Quality homes in sought-after locations close to the Brisbane central business district remain popular. Those that appeal to the owner-occupier, in good school catchment zones with family-friendly floorplans and in desirable neighbourhoods have not actually lost their popularity despite broader market conditions over recent months. We have consistently represented buyers who have been fed up with missing out due to the high levels of competition for these types of properties in Brisbane. We expect, with high levels of interstate migration continuing, that this segment of the market will continue to perform well throughout 2023.

New builds in established suburbs close to the CBD also remain very popular, with strong demand from buyers wanting to move in with nothing more to do. Due to the demolition control measures, which are part of the Brisbane City planning scheme, new builds with modern floorplans are usually scarce in areas dominated by character Queenslander homes. This makes them very popular with buyers wanting the perks of a modern home in some of the most desirable neighbourhoods throughout the city. 

Renovator properties suffered a lot with far less demand throughout the last few months of 2022 — most likely due to the difficulties associated with escalating construction costs in the building industry. As this industry stabilises this year, we expect that renovators will again become more popular in the latter months of 2023, especially those in sought-after neighbourhoods.

Properties on the outskirts of greater Brisbane areas where higher volumes of interstate investors have been chasing high cash flows for several years may lose their popularity in a higher interest rate environment. With higher holding costs, the net return is less attractive. And if there is any change in property values due to softening demand from other cash flow investors, this could result in further price falls for these types of properties. 

Whilst we have seen rents in some of these areas increase over the last 12 months, which helps to offset the higher holding costs, there are affordability caps in areas where tenants will be restricted by the incomes that they earn. This will ultimately cause rents in these areas to find their ceiling price. This is an area to watch as we move through the months early in 2023 when fixed-rate mortgage holders roll over to variable rates. We intend to monitor this closely in the months ahead.

Units in areas close to the CBD remain resilient, and we expect that this segment of the market will continue to perform relatively well. Affordability will drive the demand for quality units and townhouses in premium locations. Quality is the driving force to look for as there are many higher-density apartments that do not have much owner-occupier appeal that may not benefit from the same levels of demand as those properties in smaller complexes with larger floorplans. We remain optimistic about the unit and townhouse market in Brisbane throughout 2023.

Overall, we do believe that the worst of the market conditions has passed. We do not expect median values to continue to trend downward for much longer. This means that the opportunity to buy well in Brisbane may be coming to a close.

For many people, going against the majority is hard. During 2021, when the market was accelerating and property prices were growing between 2 per cent and 3 per cent per month, there was so much competition that it was difficult for buyers not to overpay. Now, with lower levels of demand, the opportunity to buy well still exists. But don’t expect this to be the case for much longer. 

Brisbane is a city with very strong property market fundamentals. As soon as consumer confidence recovers, we do expect that the demand will be back, and we may find ourselves in a more competitive market across the board once again. However, it is always important to note that not all areas and not all properties will perform equally. This is why getting expert advice from the local buyer’s agents Brisbane trusts makes sense.