Property market update: Perth, August 2022

CoreLogic’s latest report showed that every Australian capital city except Darwin is now in a downturn, with the country’s property values falling at a rate not seen since the 1980s. In July, only five cities were in the negative territory, indicating an acceleration in the housing market downswing. 

CoreLogic’s research director Tim Lawless said that it’s difficult to pin down when a rebound might occur for the country’s housing market, given the lingering uncertainty associated with inflation, wages growth and monetary policy.

“It’s hard to see housing prices stabilising until interest rates find a ceiling and consumer sentiment starts to improve,” Mr Lawless said.  

The central bank’s rapid-fire interest-rate hikes have pumped up the country’s official cash rate over a five-month period from a historically low level in May to 2.35 per cent in September — the highest level in seven years.

Mr Lawless forecast that prices would continue to decline as property markets, namely buyers and sellers, continue to adjust to the new interest-rate parameters. 

“From current levels, interest rates are likely to increase by at least another 75 basis points, and there is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values,” Mr Lawless stated. 

But despite Perth’s decline being heralded as the latest omen of the market downturn becoming more widespread, Real Estate Institute of Western Australia (REIWA) president Damian Collins said the “minor dip” in the city’s prices was always a possibility, given the interest-rate environment. 

But he pointed out that given the weakening market conditions around the country, Perth was holding up “very well” overall — particularly in comparison to other capital cities around the country.

“We anticipate there will be fluctuations month-to-month in the overall Perth figure as buyers adjust to interest rates rising; however, Western Australia’s strong economy, growing population and housing shortage point to the current growth cycle continuing,” he commented. 

He also highlighted that agents on the ground are still reporting strong competition for properties and good outcomes for sellers, evidenced by 56 suburbs that still recorded median house sale price growth during the period.

Will the West Australian capital continue to hold on to its property values in the coming months? Or is the start of steep declines for the city?

For now, let’s see how the city performed in August 2022. 

Property values 

CoreLogic data showed Perth’s dwelling values fell by 0.2 per cent in August, reversing the 0.2 gain the city posted in July and marks the first time the West Australian capital’s monthly results were in the red since December 2021. 

The city’s quarterly values also inched closer to the negative territory, up by just 0.1 per cent over the rolling three-month period to August. Last month, values were up by 1.2  per cent over the three-month period to July. 

Compared to the same period last year, Perth’s property values are still up by 4.1 per cent, with the average price of a property in the city now at $558,879 — representing a $1,141 monthly decline in the median cost. 

While the city’s prices were still above pre-pandemic levels, Mr Lawless commented that the equity buffer looked likely to be squeezed further as the Reserve Bank continued its monetary policy tightening. 

During the month, both the house and unit sectors also recorded declines in median value — indicating that the property market downturn has become more widespread. 

The city’s housing sector bore the brunt of the declines, recording a 0.4 per cent in average values in August. Last month, Perth houses still enjoyed a 0.2 per cent monthly increase in prices. 

Compared to the same period last year, the median price of a house in Perth is up by 4.3 per cent, with the average price tag of a house in the city at $584,941, which is $2,100 less than last month.

The city’s unit sector proved to be more resilient than its house counterpart during the period, edging down by only 0.1 per cent in August. 

With the unit market’s annual growth rate now at 2.6  per cent, the average price of an apartment in the city currently stands at $413,265. The figures are down by $1,805 from last month.

Separate data from REIWA showed that 56 suburbs across the city recorded median house sale price growth during August, despite CoreLogic’s home value index showing an overall weakening in the city’s prices. 

The five suburbs to record the biggest increase in price during August were Maida Vale (up 3.1 per cent to $593,750), Cooloongup (up 2.6 per cent to $370,000), Hillarys (up 2.5 per cent to $1.005 million), Southern River (up 2.2 per cent to $625,000) and Orelia (up 1.9 per cent to $327,500).

Other suburbs to perform well for median house sale price growth were Stirling, Seville Grove, Woodvale, Yanchep and Girrawheen.

Supply and demand 

Perth vendors did not catch a whiff of the spring-selling-season fever usually felt during the tail end of the winter months, according to SQM Research, as total listings in the city fell in August. 

SQM Research’s data showed that total residential listings in the city fell by 6.5 per cent in August to 21,053 in August from 22,516 in July. Compared to the same year, the overall supply is up by just 1.7 per cent. 

New listings (or properties that have been on the market less than 30 days) in Perth fell by 9.4 per cent from 7,221 in July to 6,524 in August. Compared to the same period last year, new listings in the city are down by 0.1 per cent.

Old listings or property listings over 180 days in the city also fell by 2.9 per cent from 3,983 in July to 3,867 in August. On an annual basis, old housing stock in the city is up 4.4 per cent. 

Managing director of SQM Research Louis Christopher said that the decline in listings during the month was unexpected, as normally, August is a month when listings start to rise ahead of the spring selling season. 

“It would suggest to me spring is going to be weaker on the activity front. Vendors are clearly cautious to sell in this environment, and there is no panic selling at this stage,” he commented. 

Separate data from REIWA showed that there were 8,391 properties for sale across Perth at the end of August, figures which were 1.8 per cent lower than July.

“The housing shortage that has gripped the state for the last couple of years continues to affect the residential sales market and is a key factor behind the strong competition buyers are experiencing,” Mr Collins commented.

The REIWA executive noted that Perth was still seeing properties sell well, with the average time on market at 17 days during August — which is one day slower than July and one day faster than August 2021. 

“Properties are still selling very quickly across the Perth region, which is not surprising given listings for sale are still low. Buyers need to act quickly and present a competitive offer in order to secure a property,” he advised. 

According to the institute, the fastest-selling suburbs in August were Orelia (six days), Greenfields (seven days), Merriwa (seven days), Parmelia (seven days) and Cooloongup (eight days). 

Other suburbs to record fast median selling times during the month were Kingsley, Warnbro, Kinross, Carramar and Clarkson.

Mr Lawless stated that the spring selling season would be a test for buyers’ appetite for Perth properties, as listings ramp up. 

However, he expects selling activity will be more subdued this year, given the current trend in supply and demand. 

“Between winter and spring, we typically see a 22 per cent rise in the number of new capital city listings based on the pre-COVID five-year average,” Mr Lawless said. 

“The flow of new listings this spring season may not be quite as active with the housing downturn dissuading some prospective vendors, but we are likely to see more listings added to the market than in winter.” 

He also forecasts a slowdown in buying activity as higher interest rates and low sentiment continue to weigh on demand. 

Vacancy rates 

Perth’s number of available rental listings hit a new record low in August, making the city one of the most difficult places in the country for a prospective tenant to find a vacancy. 

The West Australian capital’s vacancy rate slid by 10 basis points over the month to 0.4 per cent, continuing its reign as one of the most competitive cities for tenants. 

The number of available rentals also fell to its lowest levels during the period, with the number of untenanted rental properties in the city clocking in at a mere 752 at the end of August. 

Over the month, the figures are down by 14.8 per cent. On an annual basis, the number of available rentals in the city is down by 35 per cent. 

The areas with the highest vacancy rates across the city were Cottesloe – Claremont (1 per cent), Perth City (0.7 per cent), Fremantle (0.5 per cent), Melville (0.5 per cent) and Canning (0.4 per cent).

Meanwhile, the areas with the lowest vacancy rates were Mundaring (0.1 per cent), Gosnells (0.1 per cent), Kalamunda (0.2 per cent), Cockburn (0.2 per cent) and Armadale (0.3 per cent). 

Separate data from SQM Research showed the city’s vacancy rate stood at 0.4 per cent in August — a new low since records began in 2005 and surpassing the troughs hit during the last resources boom.

The number of available rental properties in the city fell further by 20 basis points on a monthly basis and stood at 992 at the end of August. 

Mr Christopher said the results in August are a testament to the rental market’s deterioration to “unprecedented levels”. 

“Rental listings thus far recorded in September would suggest another fall in rental vacancy rates for the current month,” he said.

“I note the recent alerts and warnings issued by the various housing bodies as to what is happening on the ground, and our data would concur with such concerning reports,” Mr Christopher stated. 

Data from REIWA painted a slightly better picture. The institute reported that 1,907 properties were listed as “for rent” at the end of August. However, the concerning figures are still 15 per cent down from July.

“The fact is there are not enough available rentals in Perth to keep up with demand. This is creating an extremely competitive and challenging rental environment for tenants,” Mr Collins said.

Mr Collins said he expects the September figures to drop when the monthly figures are finalised because the number of rental properties had recently fallen below 2,000 dwellings, for the first time since November 2010.

“Given the building industry capacity issues and return of population growth, it’s unlikely to get better in the short term,” he forecast.

Data from the institute also revealed that it took a median of 16 days to lease a rental during August, which was the same as July and three days faster than August 2021.

The suburbs that recorded the fastest median leasing times were Seville Grove (10 days), Balga (11 days), Golden Bay (11 days), Piara Waters (12 days) and Ellenbrook (12 days).

Other suburbs to experience fast median leasing times were Thornlie, Greenfields, Dianella, Morley and Wellard.

The REIWA executive emphasised that the situation would only become worse if major changes to the state’s residential tenancy laws are ratified, particularly the removal of an owner’s right to make major changes to their rental property. 

“We need to focus on addressing the rental shortage and housing supply issues, not introducing legislation that would further discourage investors from buying in WA,” he underlined. 

“To solve the problem in the medium term, we need to ensure we have a Residential Tenancies Act that encourages investment and to continue stamp duty extensions for off-the-plan past the expiry date of October 2023 to encourage investment in rental properties.”

Rental prices

Data showed that the alarmingly low number of rental properties available in Perth is driving up competition among renters and consequently driving up rental prices.

In the 30 days to 13 September, SQM’s data showed that the average weekly rental price for a dwelling in the West Australian capital stood at $536, representing a 1.4 per cent gain over the month and a 15.5 per cent annual increase. 

As rental supply in the city continues to decline, Mr Christopher warned that asking rents could also continue to rise. 

“Asking rents continue to rise across the country at a red-hot pace. All capital cities are recording double-digit percentage rental increases over the past 12 months,” Mr Christopher said.

Separate data from CoreLogic showed house and unit rents in the city rose by 8.7 per cent and 7.1 per cent, respectively, on an annual basis.

Perth’s gross rental yields stood at 4.4 per cent at the end of August, unchanged from levels recorded last month and defending its status as the best city for landlords on the hunt for best yields. 

Data from REIWA reflects the rising trend from other data providers, as the institute’s data showed that Perth’s median rent price was $480 per week during August — representing a $10 increase in the average weekly rates recorded in July.

Mr Collins sees the trend of rising rents won’t change anytime soon as long as the rental shortage persists. 

“We urgently need more investors in the market to help provide housing and ensure we keep rents affordable,” he stated. 

Outlook 

The upcoming selling season is not expected to add any spring to Perth’s step, as the RBA is expected to continue its rate hike cycle throughout 2022. 

While the RBA has indicated it is looking to wind down the size of the hikes in the coming months, experts believe October is unlikely to be the meeting that takes its foot off the accelerator. 

Estimates for the terminal cash rate generally range from the mid-2 per cent to the mid-3 per cent range, although financial markets are pricing in a peak cash rate of just over 4 per cent by August next year.  

Mr Lawless said the range of forecasts for the cash rate highlights the sheer uncertainty associated with inflation, wages growth and monetary policy.

With this, the expert expects Perth’s downturn will continue to play out  through the remainder of the year and possibly into 2023.

This downward trajectory is seen to unfold until the RBA decides to wind back its monetary policy tightening, which will put a floor back on prices. 

But Mr Lawless highlighted that there is an upside for those looking to buy a property amid the downturn.

“The silver lining to lower housing prices is an improvement in some measures of housing affordability,” he offered. 

He cited the data from the ANZ CoreLogic Housing Affordability report, which showed housing values saw the time needed to save a 20 per cent deposit fall for the first time in almost two years across the capital cities, while the dwelling value to income ratio also declined. 

“As housing values trend lower and incomes rise, we expect to see a further reduction in these barriers to entering the housing market,” he explained.

Meanwhile, Mr Collins reiterated his forecast that Perth’s market would continue to go from strength to strength in the coming months amid challenging conditions, due to strong demand stemming from its appeal as an affordable state to rent or buy in. 

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