After many hours of research I wanted to share with you my latest Perth Property Market Update, with my deep insights into the Perth Housing & Rental market plus for the first time I also uncover the Demand Drivers that will need to increase in order for our Perth market to be in recovery.
I also show you my crystal ball predictions for the next year with the suburbs I expect to outperform the rest.
This really is one of the most in depth and useful market updates I have ever put together in over 11 years of doing this, so that is saying something!
Transcription & Graphs
Perth Sale Market
Hey there, Jarrad Mahon from Investors Edge Real Estate bringing you my latest Perth Property Market update and in this one I’m going into where is the demand likely to be coming from and what are the factors that are going to influence that we should keep a watchful eye on.
It’s the first time going into these, I think it’s going to be a key to when our market is going move around into recovery.
So first I’ll go through the housing market as it is now and the rental market, then all these demand factors and then some of my predictions and suburbs that I think will do well over the next year. Hang tight, I’ve finally found some time to bring this to you at home on a weekend with my baby finally asleep so hopefully she doesn’t wake up. I’ve been putting this research together for the last few weeks and finally got a chance to record it. Sit tight.
Number For Sale
In the number of properties for sale, we’ve seen this continue to trend upwards from September 2017 and we’ve at least had a bit of a tightening of the market in the last three months. We’re at our highest ever number of properties since I’ve been recording, back in May right before the election that was one of the worst markets I’ve ever sold in and we were up at 17,000 and properties on the market.
So we’ve trended backwards for the last three months and I expect the number for sale to increase going into spring as we have the spring selling season. We’ll have to see if that demands is gonna be there and leave us with more properties at the end of that time or we’ll keep an eye on if the market does break through this trend to start tightening up even more.
For that to happen, we’re going to need to see more demand and that’s what I’m touching on soon. Compared to the same time last year we’ve had three and a half percent increase in the number of properties for sale.
So pretty much on par with where we were last year and a marginal increase and I probably put the supply down to the fact that a lot of people would have come on the market and so if they could but they can’t get the prices that they wish yet so they’re hanging off and only those that are coming on that have to sell are selling so I suspect there’s a lot of pent-up supply here still waiting to come through as well.
Let me actually look at the number sold and this is the trend that has worried me the most I guess and when you can take it back all the way to 2013 even when I started keeping these stats.
You can see that there’s been a gradual trend downwards in the number being sold every month, not just for the last two years but the whole time and that trend in decreasing demand is what has also seen prices decrease over that period so we really need to see this change and break through this trend line before we’re gonna see us move around into recovery.
So we’re pretty much on par with where we were for demand at the same time last year, marginal difference not really noticeable but the overall trend has certainly been downwards since then.
Average Selling Days
Now when we look at our average selling days, you can see that we started to actually take a bit of a dip towards the end of last year in December but then with the election and the Royal Commission changes washing through, really put the brakes on the overall market. We jumped up and we’re still sitting at this just below 80 days, 75 days, 78 days on market. That’s a long time to take to sell the average property.
Now, what a lot of people don’t understand about the average selling time is that properties that are priced well, will actually sell in two to three weeks and it’s not that it’s taking 75 or 78 days to sell a property, it just takes two to three weeks to sell a property once it’s at the right price. It’s taking that long to find the right price so once we get there and we’ve got the found the price of the market with the property that we’re selling, it will sell very quickly.
A property will still actually go stale around the 30 to 45 days on market when everyone in the market has seen it so you’ve really got to be trying to position the property to be attractive from the beginning to get multiple buyers interested which is still happening in this market when you find it and then looking to accept the best out of the market in that moment. But yes, this trend is still upwards of average selling days as well until we see that reverse, we’re not gonna see the prices start to increase either across the median house price anyway.
Median House Price
You can see that our median house price which is the final factor that reflects both the supply, the demand and the average time to sell, the price will always kind of respond last in those stats. You can see that we’ve had a continual decrease and we’re now around the $490,000 and $495,000 mark.
Similar time last year, we were just over five hundred thousand. I think it was $505,000 in memory so we had a bit of dip down and our overall trend is still down.
Median Unit Price
Median price for units has also continued to slide just as much over the period if not more. You can see that we started at over $450,000 odd thousand, we’re now at just under $380,000.
Perth Rental Market
Number for Rent
Now we go into the rental market, you can see the number for rent thankfully had started to decrease since about September two years ago. We’ve had a continual decrease over that time trending downwards and went down 2.4% since January this year. We’re down 13% roughly on a year ago, so there’s is a lot less properties for rent.
So as the number for rent decreases, the vacancy rate or the time that a property is vacant decreases too and as that happens, our market starts to tighten up. When we generally get below 3%, we see a pressure starting to build on rental prices which is happening now in many suburbs.
So we were running at 2.5% for the last few months and we’ve just had the June stats coming out which I have not put on here. The vacancy rate has jumped back up slightly to 2.9% so we need to see if this overall trend is going to continue from 2.9%. The average suburb and median rental price property is at $350 per week approximately will be just holding its rent and so we haven’t really seen that the median property price change. The average properties price has not started to come back yet but many suburbs are having increases.
Many properties as we renew (the lease) are having an increase in their rent. So there’s still some suburbs dropping in price, we’re increasing some others but the average overall is about the same still. So you can see that vacancy rate tightened up significantly since the same time last year, 51 percent decrease is massive!
Median Rental Price
You can see that has been unchanged over the last six months and the last 12 months we’re at 350 per week, basically flat lined and stabilized there. We were as high as $480 per week which was the average rent of our overall portfolio that we managed back in October 13. It’s been a long very difficult ride, that’s a 32% decrease over that time. I know because I felt the pain myself.
Highest Yielding Suburbs
I popped this slide image in to give you some data I just came across. It’s not really easy to find all the time. This is the 10 highest rental yields in the Metro Area thought I’d bring it to you. For those investors that do like to chase rental yields while touching on the rental market, you can see that the lower price tends to have a better yield and most of them are around Kwinana. We’ve got the Rockingham area in one corner then we’ve got the Armadale, Brookdale area and Koongamia. So very distinct areas of Perth and you can see that we readily now getting rental yields above 5%, the highest being 5.8%.
So if you are more of a rental yield investor, check out those areas. Just be careful because they do have a bit further to fall south for selling prices so make sure you buy well in there. You can see out of them all, the demand to supply ratio is highest in these top 2. So if you’re gonna focus anywhere, those would be the ones I would suggest. You know the others they’ve still got much further to fall.
Property Clock Timing
So on the property clock where is Perth. Well, we’re still in this bottom of the market face and I would argue that how can we know when we’ve bottomed, we can’t truly know until we start increasing.
So I would suggest that we’re actually more around here still (5 O’ Clock), we only start approaching the bottom because month on month we are in fact still decreasing in most of the stats. The Heron Todd White property clock seems to have turned us around into the bottom of the market phase, once our rental market started to bounce back. But I think it’s been a bit premature and we’ve had some other factors that have really hurt us harder over the last six months being the election and the Royal Commission that washed through.
So it’s just gonna take a bit longer to get us back on our feet and we’ve got a further slide to go I believe. I’ll touch on that a bit more in a minute, but where do we stand for the unit market? We’re still very much in a declining market for units across Perth back around here at 3 o’clock.
Factors Affecting Demand
My key focus for today is chatting about the factors affecting demand in our market. I’m gonna go into finance first because if people can’t get finance, they can’t buy houses, simple as that. So what is happening in that space is very important for us and then the other major things that lead to demand is employment.
So if employment rates are going up in WA, that’s a very positive sign. What drives employment is projects because we’re so mining focused and infrastructure projects make a massive difference too to this employment factor. Both of these things lead to population increase. And population increase leads to demand in housing and upward pressure on prices. All of this can be reflected in confidence and measuring that as well. So a consumers confidence is a big factor that leads to demand.
Availability of Finance
Let’s go through finance. The RBA cash rate has dropped, not this month in August, but it dropped in June and July by 0.25 basis points (each time) and our cash rate is at 1% now. I just heard on the radio today that, they’ll go as low as they need to and it could end up as low as 0% if it’s required and that kind of has worry a lot of us as to what is the overall state of the economy?
Clearly, these drops are very much needed to try to cushion the eastern states markets and we certainly haven’t bounced back yet either. So it’s a blunt tool and we need to probably as government’s look at what are some of the other ways that they can help. You know, get more buyers into the market and decrease the barriers, not just be looking at this (interest rates). I mean, at the same time the WA government has gone and increased transfer duty for foreigners which was a bad move in my opinion.
I’d love to collect more taxes from foreigners but we need to make it as easy as possible for them to get buying into our market. So we need to be looking at taxes and the duties and the other things that make it easier from that viewpoint as far as I’m concerned.
More importantly than probably what interest rate we’re paying because if you can’t afford in the bank eyes to get a loan it’s very difficult, you don’t even need to worry about what interest rate but APRA has made their changes to the banking criteria and how it’s assessed. The banks are slowly starting to relax their lending criteria and no longer assessing it at such high interest rates.
They’re now assessing it at a margin on whatever the current rate is (Cash Rate + 2.5%). I think they were assessing it at 7% percent before. So that will enable more buyers to be able to get into the market over the next 6 to 12 months. Well, more buyers equals to more demand which much needed.
You can see and I’m gonna start tracking and reporting to you the changes in annual employment in WA and also how that compares to overall Australia. This is seasonally adjusted stats at different points in the year. There’s a higher population than others depending on the seasons and what that does. But you can see that we were up around the peak at June 2011 in Australia and in June 2018 in Australia. WA kind of a peaked in 2012 and 2013 which is when we hit our peak of the market (housing prices) funnily enough when employment was growing by its fastest per year.
We actually had negative growth in employment, you can see in June 2017. Over 2018, we moved back into the positive having growth in employment per year. We’re now sitting at around 1% and we’ve been trending downwards for about the last year. So we need to see this peak back up again. We need to see the trend get back up above 1%. We need to see in the 3% and 4%, more in line with the average in Australia to be seeing that demand side turn around and seeing prices turn around.
So what is actually going to drive the employment is projects and it was a really great article in the West on the 28th of July. Going through the top 50 projects and their start dates and statuses of them.
I found this to be incredibly useful because just at a glance, you can see when projects are coming on and when we’re likely to have an influence on our stats that I’ve just covered. You can see a lot of these major ones than the biggest projects are all 2024 and 2026 out of those top four projects and then we move down most are in 2022 to 2023. There’s not too many in 2019 and 2020. So taking a look at that, I would argue that we’re more likely to be hitting our straps of our recovery in that 2022, 2024 and 2026 period and things are looking more rosier for demand in those years.
We’ve got further to go before we actually start to get around into that recovery. It’s likely to be 4 to 5 year period from 2022 to 2026 when we actually have some good uplift over that 4 year period. Just gonna take a while to get their I believe.
Population Growth WA
Now when we look at population growth. If we get the job growth, if we get the projects, then the population follows then we get demand on our housing. So looking at the change in population, we’ve had approximately a 1% change- increase over the last year to December 2018. This is the most recent stats that I can get.
Population reporting is delayed and won’t be coming up probably again until December this year. You can see that the interstate migration has still been negative so we’ve still had people that we’re losing to other states. They’ve had a bit of an uptick towards the end of last year in the overseas migration. But we really need to be getting this interstate migration coming back. It has been decreasing in the number of people that have been leaving.
We need this back in the positive. You can see again, when we were last finishing our growth period in December 2012, we were up it almost double the net population increasing per year, So a long way to go to be getting back to that level of demand.
Population Growth- States Compared
How do we compare to the other States? You can see WA, that’s 1% here in the middle. You can see that Victoria is still tracking to the December last year at above 2% to 2.5% roughly. New South Wales at 1.6% and ACT that is high at 1.8% odd. So all those others are still growing faster rates than WA and that’s why they’re gonna spend much less time in their downward markets and they’re gonna be recovering a lot quicker too. We’ve really got a long way to go to be getting back on par with the demand that they’ve got in those States.
They can’t keep growing forever and that’s why they’ve come off the boil and the prices got way too high. The APRA and royal commissions changes happened and the election so they’ve got to cool off for a while but you can see that we’re still ranking very low compared. The only States that are lower than us is Northern Territory, heaven forbid for them, they’ve had a negative growth over the last year. South Australia is slightly less than us.
So finally consumer confidence and how is that looking for us here in WA. I was pretty excited when I saw this graph because you can see that we’ve been building in confidence and this is a measure by the Chamber of Commerce in WA (CCIWA).
You can see that we’re at one of the highest levels in short term confidence that we’ve almost ever had since back in 2013. So that’s a very good measure that we’re starting to get back on track for confidence. We’re starting to feel more confident in the stability that we have and the point of market that we have and in our jobs and overall economy so that will start to flow through to the housing market in due course.
My Crystal Ball
Timing for Recovery
So my crystal ball to round things out, I think we’ve really got another 6 to 12 months before we really declare that we’ve bottomed and I don’t think we can call that we’ve bottomed until we head around into recovery because you don’t know where the bottom is until you start coming up. So I think it’s gonna be 6 to 12 months before we start seeing the average median prices come up and slowly recover from there. I think we’re going to be going until 2024 to 2026 (in growth), with those projects that we’ve seen and it’s gonna be five to six year kind of upward period at least. But it’s gonna take us some time to start getting into that.
You can see from the demand levels, I’ve looked very closely, the average time for properties to be selling in suburbs and even though I am saying that there’s a bit further fall for the majority average median in Perth, there’s many suburbs that are also doing very well.
Suburbs Predicted to Outperform
So North Coastal areas like the Heathridge, Padbury, Hamersley and Craigie, I think they’re gonna do very well over the next year. This bracket between five to seven hundred (thousand) where it’s most affordable is where the majority of the action is going to be. Even though the median will be still be dropping a bit further, this end of the market will be going upwards and starting to increase.
Then we’ll also see at the moment the demand in the Western Suburbs and the Million Dollar plus price points that I expect it to continue to do well. That’s areas like Claremont, Swanbourne, Cottesloe and Dalkeith. But I’d also like to mention of a couple of Suburbs on the South side that I like to mention, like the Northern Suburbs, Willetton and Riverton are doing very well because of the schools there. All of the Suburbs in the $500,000 to $700,000 price brackets are good for schools, good established areas for families. So that’s what kind of a common to all of them.
Now, I think the bottom end in general speaking has some further to fall, that’s the subs $450,000 price bracket so if that’s where your budget lies, you need to be very selective on what you’re buying. When you’re getting in, make sure you are purchasing well and protecting yourself as there’s a bit further to fall.
Rental Market, I think that’s going to continue to recover before the sales market does, improving rental yields and also encouraging tenants to become homeowners and get out of renting. Why?, because the new entrants coming into the State, they often rent before they buy. There’s also still very few investors adding stock to the rental market. So tight supply, increasing demand from renters and I expect rental prices to continue to recover before the housing market does before it goes around into it’s full recovery.
So I hope that’s been useful, I’m actually going going to now start reporting much more readily on the demand side to our equation. I think that’s the key to our recovery and I hope this all made sense. Drop us a line if you want some input on your specific property, we do manage 200 per suburbs and I’ve sold in 160 odd so I know what’s going on and I’ve got my ear to the ground. I can help you with your specific situation. Cheers.