July 2018 Perth Property Market Update – Intensive Review & Forecast

In my latest Perth Property Market update I do a full review of the last financial year and forecasts for the next one looking deep into the Perth sale and rental prices and what investors can expect over the next year.

Watch the video here or see the transcription and graphs below.


Perth Sale Market Update

Number For Sale

The number for sale has gradually been drifting down from September 2015 and we’re now at 14,153.

We usually reach equilibrium at around 12,000 between supply and demand, so we’re still above that in a buyers market at 14,000.

And you can see that gradual slope we’re in different parts in different seasons and July which is traditionally is a period where we have a bit more stock on the market and spring will also see stock come on market then it tightens up towards December and then we see more stock come on again.

But the number for sale is showing a downward trend that’s good, we don’t want it to ever pick up above because that would mean that we’re not continuing to improve and something’s going wrong with our recovery.

And what I actually expect to see as our market continues to improve, can you imagine how many people have wanted to sell over the last two or three years? There’s a lot of them pent up waiting to sell if they can get the price that they need. So we can see this supply actually starting to increase a bit as the market comes back. And that’s going to actually delay our recovery. It’s going to take a long time, possibly a couple of years for all those people that wanted to sell to wash through and exit and get their price as things start to recover.

Number Sold

So what we need to see is the demand side of number sold starting to break out of these sideways if not sliding down trend and that hasn’t really changed much yet. And this is actually been one of the lowest sale months since I’ve been keeping data for five years.

So until we see the sentiment change on the jobs side, to really spark that migration coming back to our state, until we see that significant change we will gradually keep coming back in our recovery. But it’s not going to really kick up to a recovering seller’s market until we see the demand change. And there’s no major area to be excited about on that front yet.

I’ll go into some of their economic indicators for the state that have just been released and they released every six months and that will have a big flow on effect to the demand.

Perth Median House Price

When we look at the median house price you can see that all that time obviously we’ve been gradually dipping down. We’re at $515,000 now, it’s crazy when we look across the Eastern States isn’t it now, when we see where Sydney is at for price, having doubled in the last four years, with Melbourne also significantly higher than us.

So a lot of Eastern States investors are definitely seeing the value in Perth as a capital city relative to the other states. And also helps homeowners if our economy starts to pick up there’s more jobs and they can sell their Sydney house or if they have never been able to afford in Sydney and Melbourne, they can come over here and tap in that relative affordability.

So you can see that we had a minor uptick but in the June 2017 quarter since we’ve had a slight bounty begin and we really need this to break out and start coming back before were actually in recovery mode. At the moment all of us are more calling it the bottom, so we haven’t really reached ground into strong solid or recovery yet.

Perth median house price

Perth Median Units Price

And the median price for units, are trailing the housing market they do this in all the capitals by about twelve to eighteen months. So even when we get down to recovery in houses expect units to take that much longer to get around.

And you can see that that’s been more of a sharp decrease and we haven’t even seen any major upticks in that yet and I expect that to continue to adjust a little while and it’ll probably start to level out a bit more slightly decreasing.

Perth units median price

Perth Rental Market Update

Number For Rent

On the rental side and obviously as our rental market comes back and our rental yields improve, the Perth market starts to become more attractive to investors and that’s what the eastern states investors are all really waiting on.

They want to see our vacancy rate tighten up and our rental price start to recover. That’ll be a good sign for them to start buying here, they can see value but they need to also see the other half of the equation which is the rental side start to come back too.

And I’m excited that our number for rent had some significant drops in the last four to five months. And we actually are now at just over 8,000 properties for rent. We were up at 11,000 at one stage back in September of 2016, so that’s really going the right way, 40% decrease since January. So it’s tightening up and 24% since last year, that’s significant decrease just a year ago.

Rental Vacancy Rate

And the vacancy rate as there’s less properties for rent, the vacancy rate will tighten up too and you can see that dropped from 7.6% we’re now at 5%. And I noted there that I would love to have seen it stick within this new trend line but it’s kind of a drifting sideways a bit now which when I tracked back seasonally, in winter there is very little activity. We don’t write our leases to expire now, we spread them out into more active periods of the year. So it’s in part seasonal thing but I really want to see this trend to continue to go down.

Now with vacancy rates 3% is the understood rule of thumb for the market supply meeting demand. When we drop below there, we see pressure on rental prices so I wouldn’t imagine our median rent price will start coming up until we see this get closer to the 3% mark in vacancy.

What we’re seeing on the individual property level, the individual suburb level, family homes in popular areas were already getting rental increases on. Properties that are a bit more unique we’re seeing rental increases on, unfortunately the units are going worst than houses and it’s similar on both the sales side and the rental side.

Median Rent

So that shows no change in the last year and the last six months staying at $350pw, so at least it stabilized thank God because our revenue is in direct proportion to the rental price as for all of my landlords and it was very difficult over the last 2 years, having a 25% drop in the rent price for all of us.

So we’re actually starting to see marginal increases, I am celebrating a 3 cent increase (last month) in the average rent on our overall portfolio and keeping in mind we manage in 200 suburbs of Perth and so we really represent an average of the whole market.

Timing the Property Clock

Houses Property Clock

So keeping an eye on Herron Todd White’s Property Clock,to be honest this is a self-fulfilling prophecy when people eventually see Perth in recovery then more investors jump in and makes it definitely a recovery.

So we’ve even seen inquiry and more interest start now that we’ve come to the bottom of market a few months ago. And you can see where we are compared to the other capitals, Sydney is in declining market now and Brisbane in a rising market and start of recovery.

We’ve got the South East Queensland areas and other popular Queensland mining areas and South West WA is there and bit better off than Perth metro. I am really trying to get my head around why that (Country WA) started to recover first. I haven’t seen that happen before that way.

And I think it was just relatively really good buying and prices had dropped further and those that have had the money to buy have picked up a nice place down in the Busseltton, Bunbury etc have done so.And we were also seeing a lot of people decide to move down there permanently and sell family home in Perth and retire, there’s a  lot of retirees that have been holding off doing it. And have now decided “I’m going to go a bit further south than Mandurah, I’m going to put an extra two or three hundred thousand in my pocket and buy something really good, even better value, further down south.” And that’s what I believe what is behind the South West recovering sooner but it did drop further than the average suburb did in Perth.

Unit Property Clock

So for Unit market, we can see we’re still labeled as declining market, back around here, and I mentioned that would be twelve months before it gets around of it’s bottom of market phase.

And so when you look at units there’s a number of different unit types that are all lumped together in one category and it’s not really fair to just paint them all with the same brush.

There’s high density complexes which I would say this is definitely the case for, then there’s villas and townhouses which are lesser density. And we’re actually finding that they’re going to be a lot more unique and sort after in the coming five to ten years because they have a land compartment and may have often lower low or no strata fees.

And people can actually have a little courtyard garden and because they are all ground level, it suits the aging population better than multi-level walk-up apartment as well.

So I am personally looking at units that fit those villa or townhouse categories if they needed renovation, with some of them built in the 80’s and 90’s can be suitable for a renovation strategy specially if you’re looking at infill areas close to the city.

Economic Forecast

So the economic forecast, this comes out every six months from the Chamber of Commerce. The exciting part of these stats is that we’re actually tracking better than they forecast a year ago which is rare for statisticians.

They must have been more pessimistic given the last two to three years, so that’s good.

And you can see just how shit our economy was going. I’ll just point out a few key stats, dwelling investment down 19.8% in 16-17, down 10% this year and is expected to grow by 2% and 5% over the coming financial years. That’s one of the key categories that impacts the property market.

Also, business investment all flows through to job creation ultimately, down 28.6% in that previous financial year, down 5% this year, with forecasts for 3% & 5% in the coming years.

So not massive upticks in any of those categories compared to where we were during the boom but we should see things starting to gradually recover with them swinging around into the positive.

So for property investment I’m thinking over the next two to three years we need to be selective. It’s a good period because we can start to actually count on the value tomorrow being what the value is today and don’t have to worry about declining or going backwards.

How can you do a project if you’re planning on a certain selling price and then you get there and the price is not there. So in my business mind I’m just thinking as long as the price stays the same I can work with that, I can plan towards that and I can make selective moves, calculated moves to make money and there’s a lot of other benefits to being in this tough market (lack of competition, more properties to choose from, greater buying power).

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