This is my last Property Investment Market update for 2018 as filmed live at our Perth Property Investors Meetup, covering the House Prices and Rental Prices and my predictions for what is to come. Watch the video here or see the transcription and graphs below.
Transcription & Graphs
Perth Sale Market Update
So, I’ll cover up a bit of the Sale Market first and some of the key things we look at is the number of properties for sale. And this has been gradually trending down and whenever we look at any stats, we’re interested in trend not in individual one off stats.
So the media often comes and reports on the monthly peak or the decrease and these are just snapshots and it’s just all noise. So it’s hard to know what’s actually worth paying attention to.
They can talk about sales being up for the month or you know different things like this. It doesn’t actually really matter, what matters on any analysis is looking at ongoing trend and seeing how there’s always blips to seasonal activity.
And what we want to look for is if something’s breaking out of trend because it’s very much like share trading analysis. It goes between bands and once it breaks through it then enters a new trend and once it does a series of successive points in the new trend line, then we can see what’s happening and start to make some decisions based on that.
Number of for Sale
So our number for sale has been nicely trending down since September 15 which is the peak of worst number of properties for sale in the Perth market, Perth market wide.
And you can notice here that we’ve actually had a blip above our ongoing trend which is a bit of an area for concern and there’s number of reasons that have come into that.
So at the moment we’re in spring there’s ordinarily a higher amount of properties on the market for sale. But what’s actually different than previously is the abrupt changes from the banking royal commission that has really dried up the demand side of the equation.
And when we flip over to our next slide with number being sold, we’ve actually entered a new trend down of number being sold.
I use to have this going and trending upwards in the number being sold month on month but now since July last year we were starting to come up but we actually trending downward in the demand month per month.
And it’s been made much worse since this banking royal commission has started, so that’s the negative side.
You can see the demand is not yet there. I like to compare that on six months and twelve months when you look at data ongoing. There’s been a decrease in the number of sales roughly 26% down week on week since the same time last year. So we were selling a lot more during this period last year and 26% is big number.
So what is gonna keep happening as well is if you can imagine as the market starts to come back, I do like 30 appraisals for every 1 person that the price will work for to sell. So there’s 29 owners that would sell if they could. So as the market starts to improve and the economy starts to improve that supply is going to keep coming on in the next 12 to 18 months it will wash through.
So if the buyers don’t also come, if the demand doesn’t also come we will see the supply start to turn back the other way which is what we’re now seeing the start of. So for the short term we might actually see this (supply) starting to increase if we don’t start to see some demand come back.
So investors have struggled to get financing, a lot of investors that started buying properties here have dried up in the last month or two. We’re really just gonna need to see this Banking Royal Commission shakeout, money start to become more liquid and free up and get back to some normality.
Median House Price
So what else is happening in the case stats to change that you can see we had an upturn in the median house price so the price is the final thing that follows.
With Supply and demand- as supply tightens up, less properties for sale, if we have more demand then the price gets pushed up and what actually happens before that too is the number of days on market tightens. So we start selling quicker, then buyers start paying more and that’s already happening in some suburbs, so we’re going into that later. So as in any market, some suburbs are doing well some suburbs will be doing shit.
So this shows that we’ve steadied the median price and so I suspect we’re gonna flip down the median price and this is a trailing indicator and that’s why I show this slide last, is the least of the stats that I focus on, I call it a trailing indicator.
Median Unit Price
So the unit market is trailing the sale market by 12- 18 months and look at that median price is it’s still gonna keep going down. And that’s why I’m genuinely thinking if you’re gonna take any steps at the moment. I suggest you focus on houses and their land component and units are all lumped together so that’s villas, units, apartments, townhouses. Obviously within that category I prefer anything with more land compartment is better. So with apartments they are gonna keep flooding the market with higher density groups and that’s going to be really disrupted for some time to come. Where as villas they’re not building as many in suburbs anymore, they’re gonna be more unique much better than a high density apartment.
Perth Rental Market
When we look at the rental market and this is what I’m probably most excited about because if this wasn’t happening I just think I would be shutting my doors coz I’m very tied to the rental market. And I have now studied how markets change, what has happened in the other capitals preceding the price recovery and this is what’s happened.
Number for Rent
So the number for rent has continued to trend down. There’s been no change in that positive trend for us and it’s 18% down since April and 33% down since October which is considerable change over a year, 33% less properties for rent. We were at a scary vacancy level of 7.6%, that was the highest in the country at that point. And that was only in March so since May we’ve been in a sharp trend down and just kind of flipped the switch and has gone really tight and in the last few months it continues to really pull back tighter and tighter and tighter.
And you can see I was only tracking the stats since January 2013 when the vacancy rate was below 3% this time here, when we’re below 3% in any suburb and Perth wide, that’s when prices increase, rental prices generally increases where there’s more demand than supply less properties available than there are tenants.
So we’re right at the doorstep Perth wide of seeing us back in growth in rental prices again at 3.9% vacancy rate where we are seeing majority of that properties in hot ahreas beginning to lease in one or two weeks, outer areas are taking 3-4 weeks and rent prices have generally stabilized.
So what I believe, this is so important and heading to is we will now start to see our median rent, which the price is always the trailing indicator, so we will start to see this come up again as our vacancy pulls below 3%. We’ll start to see tiny increases in that median rental price.
So the main reason that the rental price is starting to increase is because investors are not buying and putting more rental stock in the market right now, there’s a limited supply of rentals out there.So there’s pressure on that and because people can’t get loans as readily all of them have to rent and there’s more renters out there.
So it’s actually when you think about those two things together that is what is behind that.
Because finance is tougher and harder to get less people can buy so all the first time buyers many of them are having to rent longer than they would like. And second home buyers having to rent longer than they would like and because investors are not buying in anymore, there’s lesser new rental property. So there’s a fixed pool and if my portfolio is anything to go by we’ve got our largest number of losses month per month and it’s all through landlords wanting to sell. So there are 10 to 15 managements a month for the moment selling and we are replacing them with 10 to 15 owners that are frustrated with their current property manager, coming to us, not because they bought anything.
So what happens then is that as the rents start to come up, it makes it more attractive to investors who will see value in the increasing rental yields. And they will start coming from over east spotting the difference before any investors here do and we’re already a lot more attractive for rental yield.
So we’re a 3 ½ to 4 ½ percent yield and over east, Melbourne & Sydney now, they’re like 2 to 3 ½ percent maximum rental yield and so Brisbane is also bit more on par with us and Hobart has dropped its rental yield significantly coz its prices increased significantly too.
So as that continues to improve we will see the attractiveness and investors come back, tenants will have their rent increasing so they would also want to get out and buy a house that will put pressure on the prices again and so it goes around and I will be here to tell you about it 🙂
Property Clock Timing
So when we look at the timing of the property clock, this is Heron Todd White and I would definitely subscribe to their updates. And they’ve actually placed us, we’re down at the bottom of the market and they’ve now revisited that this month and put us back further into approaching the bottom of the market. And I think they’re right about that with the uptick in the supply and the changes that have happened in financing and its really slowed out bottoming.
So they’ve got us back around there and any changes are always shown in orange and so Sydney they’ve got that around as starting to decline. Sydney’s going to be city that dominates all the news, you know when you see the news talking about prices coming down and auction clearance rates falling.
Units Property Clock
So on the units side and you can see Perth’s still in the decline market.