WA Excerpt from the 2014 September Market report

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Moderating market

Perth’s market is easing off from its position at the front of the pack. However, commentators feel it is just a quiet period – rather than cause for concern

After putting in a solid stint as a leader of the pack in Australian capital city housing market improvement, the growth profile of Perth’s market has now flattened out. 

The latest RP Data Rismark Hedonic Home Value Index results show that Perth experienced just 0.6% growth in dwelling values over the June quarter. Further, the latest data from REIWA records a downturn in sales and an increase in properties on the market in June. 

REIWA president David Airey says these results were not unexpected and that a seasonal dip in sales activity is always experienced in the winter months. “We expect the market to remain largely unchanged until spring as sales activity ‘generally picks up in finer weather’.” 

Airey points out that the median house price remains steady at $550,000 and that early figures indicate Perth enjoyed 6% growth over the financial year. It’s a stable market with a steady median house price, steady rental price, steady vacancy rate and sales listings trending back to normal levels, he says. 

“There is enough confidence in this environment, along with a regime of low interest rates, to keep the market ticking over comfortably and with no great surprises.” 

However, according to the latest Herron Todd White report, buyer confidence has left the Perth market. It notes a drop in the level of activity, a slight fall in the median house price, and a below-equilibrium number of listings.

More significantly, the report notes that the iron ore price had dipped below $90 per tonne for the first time in two years, and that some commentators think the major iron ore players will begin to cut back on headcount. Cutbacks in such personnel could have a significant impact on the market.

Market quieter but well-balanced
On a more positive note, APM senior economist Andrew Wilson says that, while the market may have flattened out in recent months, that’s after a very consistent 18 months of price rises. 

“The median dwelling price is now about 8% to 10% higher than its previous peaks in 2010. So I think we are seeing a bit of moderation in price growth there. That reflects the fact that prices had probably moved ahead of income, so there’s a slow adjustment going on there.”

While there has been some moderation of economic activity and an increase in unemployment in Western Australia, Wilson believes this reflects the end of the construction phase of the mining boom. A further contributing factor is the need for the economy to absorb the high numbers of workers who have moved to the state looking for work.

“This is all just a mini adjustment phase. I would expect that, given the strong mining investment in, and exports out of, Western Australia continuing, the rebalancing will move back into positive territory in terms of prices growth.”

In reality, prices in the Perth market are still growing – just a bit more slowly. The market is going through a quieter period right now, but it should move forward moderately in line with the local economic performance, Wilson says.

“Perth is an interesting market. It hasn’t had a dramatic boom phase, rather it has seen an orderly recovery process. It has basically been tracking at the inflation rate since the GFC. I think it is a well-balanced market.”

Once the market starts to move forward again, Wilson expects price growth of 4–5% per annum as long as interest rates remain around their current level and the economy remains healthy.

Potential for oversupply?
Some commentators have raised concerns that Perth could be heading towards an oversupply of apartments and units. If this is the case, it could cause headaches for landlords.

According to the REIWA data, there has been a big jump in the number of rental properties on the market. 
On top of this, Perth’s vacancy rate is at 4% and typical rents have come down by around $25 since the same time last year.

Yet a large number of apartments and units are currently under construction in Perth, particularly in the inner city.

Wilson says there is no real underlying demand for closer proximity to the Perth CBD as a result of congestion and commuting issues, so there could be a risk of oversupply. But he believes that risk is on the margins. 

“There is probably enough demand going forward and the level of supply is not yet such that it will move significantly beyond the demand. It is necessary to keep an eye on the situation though.”

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