It’s been in the news now for a while, weak Perth house prices have some people spooked when it comes to property. But how accurate is the data we’re being shown, because there are a number of local experts who have a different take on Perth house prices. J-Han Ho, a senior lecturer at Curtin University’s School of Economics, Finance and Property, agrees that weak migration and an oversupply of stock are dragging down median prices in Perth.
A range of factors have affected the property market in Perth. His view is that it isn’t doing as badly as falls in the median property price suggest. Firstly, Dr Ho said the economic reasons and popularity of subdivisions was nudging down Perth’s median house price – even though the cost per unit was higher – because it means selling two cheaper homes on a block instead of a single more expensive one.
Subdivision of backyards has contributed to the average block size in WA reducing from 802m2 down to 415m2 since the early 90’s (1993-94 to be exact) http://www.homeiown.com/average-size-of-land-block/ and all this is mainly due to the development cost of the land vs the cost to build the house on the land. https://www.perthnow.com.au/lifestyle/real-estate/average-perth-block-size-shrinks-again-ng-b7fe27f156f3937551cc711ef314a91d
“The median house price statistic is not perfect,” he said.
“If a lot of properties at the lower distribution sell, then the median house price will come down a lot more because there are fewer transactions at the top end of the market.”
Secondly, migrant influx from countries with higher-density urban areas has shifted demand from houses to units, which, again, had lowered the median house price, due to the fact that units are smaller and less expensive.
Thirdly, he said, homes in Perth are modern compared to homes on the East coast, so upgrading is less frequent. https://thenewdaily.com.au/money/property/2019/10/07/perth-property-prices/
Rental prices also have an affect on Perth house prices, let me explain. The average increase in the median rent in Perth has increased by 5.7% so far in 2019, this is providing an opportunity for some tenants to look at building their own home for about the same they’re paying in rent. When you add the reduction in interest rates and increase in borrowing capacity together, you have a strong catalyst for many 1st home buyers to take advantage of the low Perth house prices and excellent affordability which is the best in the country. https://www.domain.com.au/news/perth-rent-prices-record-strongest-annual-growth-in-six-years-september-2019-890835/
In Perth, the median home loan requires only 27.7% of household income to service a loan with an LVR OF 80%, compared to 43.7% of household income required in Sydney to service their median loan, and 38.4% in Melbourne. This is historically very low, especially considering it was at 57% during the mining boom of 2006-07. This shows just how much room Perth has for growth in it’s property market, as we slowly start the recovery from the bottom. November 2019 showed the 1st monthly gains in 18 months, and with the increase in rental prices in 2019 this will continue to improve the market.
Reasons;
- Decreasing net migration numbers (now recovering – show graphs back up)
- Weak wage growth with the mining downturn (now recovering with large projects being funded in the construction phase – the highest number of labourers = higher demand for housing in WA)
- Weak rental prices (now increased by 5.7%) which is putting pressure on renters to pay more or build / buy in the lower end of the market)
UPDATE – 8/03/2020
Since the Coronavirus hit there is a fair bit of panic and speculation in regards to the Australian economy and property markets. With the 1st death in Australia being reported this has only fueled the speculation on the impact it will have long term on the property market. The mortality rate is currently reported at 3.4% by “Worldometers” and has fallen significantly in China where it’s most active.
“In China, the overall CFR was higher in the early stages of the outbreak (17.3% for cases with symptom onset from 1-10 January) and has reduced over time to 0.7% for patients with symptom onset after 1 February. ” https://www.worldometers.info/coronavirus/coronavirus-death-rate/
Looking at recent figures from 28th February 2020 the housing recovery in Australia seems unaffected. The nation recorded an average 1.2% increase in median prices over the month of February even with the outbreak of Coronavirus. https://theurbandeveloper.com/articles/coronavirus-affordability-could-dampen-house-price-growth Clearance rates from recent Auctions show that more than 75% of properties were sold, also giving some relief to those who fear the worst.
Additionally, rental stock in Perth is at it’s lowest level in 7 years! With only 2.2% vacancy rate and under 5,400 rentals on the market. https://reiwa.com.au/about-us/news/perth-rents-increase-for-the-first-time-since-january-2017/
Why are we not seeing panic in the housing market? Simple, the conditions driving house prices have been improving for months now and with the recent additional interest rate cut, buyers are now able to borrow more on the same incomes. With rental prices increasing on a very limited supply this will only continue the pressure on housing demand and prices for the foreseeable future.
https://www.mortgagebusiness.com.au/breaking-news/14301-coronavirus-could-curb-property-price-growth