Negativity trumps weak fundamentals in this market
WA faces a crisis of confidence as it continues to grapple with the weakening resources sector
It’s not a surprise to see negative sentiment dominating the Western Australian market at the moment. After all, there hasn’t been any let up in the flow of gloomy reports about the resources sector.
When you throw in a dose of weak statistics – such as falling population growth, rising unemployment and overall slowing economy – into the mix, you’ll end up with a lot of scared people.
“There is a lot of negativity in the Perth
housing market at the moment, which is understandable,” says Andrew Wilson of the Domain Group. “Perth recorded nearly two years of strong price growth before affordability kicked in. The local economy is really having an impact. There’s a huge rise in unemployment, and the unemployment rate in WA is now higher than NSW for the first time in a long time.”
Wilson says that while the fundamentals have dramatically shifted downwards, the situation is nowhere as dire as many people believe.
“The fundamentals don’t look good. The economy will continue to struggle, and affordability issues will still bite. But I don’t think we will see price falls this year,” he says. “I think these weaknesses will wash themselves through the system. First, homebuyers are particularly active, at around 18% of all activities in the state. I think the Perth market may not have an exceptional year, but it will have a reasonable year with 3-4% growth this year.
“I believe there’s just too much negativity in the Perth market,” he continues. “All we need is a turnaround in resource prices, and that economy will pick up again. There’s also a lot initiatives from the local government to boost economic activity. The market will be flat and sluggish, but I’m not convinced that prices will fall. I believe Perth has reasonable prospect, and I can’t see any longer term shakeout.”
Putting things into perspective
There’s no denying that the economy is weaker at the moment, but it’s also important to put things into context.
The WA economy grew by a slower 2.6% year-on-year, but economic activity is still the second highest in the country, according to a CommSec report. The state’s economic output, which is a measure of economic activity, was 26% higher than the decade averages.
Population growth, while lower by WA standards, is still a healthy 2.16% annual growth. This makes WA a clear leader in population growth in the whole country.
The current unemployment rate of 5.6% maybe high for WA, but it’s still lower compared to other states like Victoria’s 6.7% or South Australia’s 6.5% unemployment rate.
Another surprising positive statistic was the December CoreLogic RP Data Hedonic Home Value Index result, which showed that Perth outperformed all other capital cities by recording an impressive 2.8% in dwelling price during the three months ending December 2014.
While this set of data could be viewed more as an anomaly rather than an indication of a future trend, it’s undoubtedly welcome news to investors in the city.
If you’ve invested in the Perth market, be prepared to hold on to your nerves, warns Angie Zigomanis of BIS Shrapnel.
“It will be a tough market in a little while. But keep an eye on it. As with any market during this period, it can overshoot on the downside, and buying opportunities will present themselves.”
SUBURB TO WATCH
Willetton: Family suburb ticks all the boxes
Willetton Senior High School might be the largest government school in Western Australia, but it is also one of the state’s most in-demand and top performing. And the future only looks bright, as it has recently been the beneficiary of multi-million-dollar upgrades.
However, this school and others in the area are just one of the motives for families seeking out properties in Willetton. It’s situated just 10 kilometers from the Perth CBD and boasts brilliant amenities, including Southlands Boulevarde Shopping Centre, nice restaurants, and lots of leafy streets and parkland, which contribute to the soothing feel of the suburb. Residents also rave about its strong social fabric and its safety record.
Houses in Willetton grew by a reasonable 6% over the past 12 months; however, the current strong wave of demand could make double-digit growth over the next year a strong possibility – especially given its healthy average annual growth of 10.5%.
Sought-after streets near Willetton Senior High School include Kingsford Dr and Sovereign Ave, which are also a walk from Southlands Shops and the suburb’s excellent bus network. Other popular streets in the suburb for houses include Doran Pl and Oslo Lane. Three or four-bedroom houses are particularly in-demand.
There are many detached houses in this suburb that are more than 20 years old, which are perfect for renovating both inside and out.
Do you have more than $200k in your super fund? You could use your super to buy property - Find out how