PERTH'S bubble isn't bursting, but it is retracting.
October 25, 2015 12:00am
PERTH’S bubble isn’t bursting, but it is retracting.
CoreLogic-RP Data head of research Tim Lawless predicts further price falls before the market levels out, but said figures showed it was the premium echelon that stood to be affected most.
The figures showed affordable price ranges were still recording growth, which is reflected in today’s Property Report.
The report shows roughly half of WA’s 400+ suburbs recorded minor median house price falls, while half recorded gains.
How to read the, at times, conflicting market data is something Realestate readers are often keen to have clarified. The data can differ because researchers tend to use different parameters.
We questioned Mr Lawless for analysis of the market now and moving forward.
Q: What is the WA market overview?
A: We’ve seen the market place in Perth and in broader WA really benefit from very strong economic conditions associated with strong investment in the mining sector, as well as population growth and low unemployment. But that’s all starting to change — in fact, it started to change around 2012-13. It takes the property market some time to adjust to those softer economic conditions so we’ve seen Perth dwelling values start to fall over the past 12 months. Based on our hedonic index, the values are down by about 1 per cent (0.9 per cent).
So nothing exceptionally large — we’re not seeing a burst of the bubble, so to speak. What we are seeing is a normal down phase of the cycle. You’ve got to expect this after such a strong rate of capital gains previously. Rents are also moving backwards, transaction activity has slowed down and the yields are showing some downward pressure.
Overall we’re seeing the market transform from being very skewed towards sellers, to a market that’s now very much skewed towards buyers. Buyers have more stock to choose from, they can take their time — more so than they could two years ago to make the right purchase decision, and they can negotiate harder on their purchasing price.
Q: There tends to be a pessimistic view of the market, but today’s results don’t substantiate that?
A: Even at headline levels, we’re seeing less than 1 per cent fall in values over the past 12 months — that’s certainly not an implosion of the market — it’s a natural phenomenon.
We’re not seeing the market place crashing, we’re seeing a re-balancing in prices relative to rents. While the market is far from as strong as it used to be, we’re not seeing a catastrophic decline.
Q: People are wondering if we’re headed for a big crash. What typically would happen in a market like ours?
A: I wouldn’t be surprised if we do see further price falls across the Perth market — those falls will probably be most significant in areas where supply levels are known to be the highest, and those areas that may have overshot the fair-value mark more substantially. We’re seeing the majority of falls in the premium end of the market, which is a good example of that.
Our stratified hedonic index looks at the rate of capital gain across the most expensive quarter, the most affordable quarter and the broad middle of the market. It shows the top end, the most expensive quarter, has seen values fall by -1.3 per cent in Perth, whereas the most affordable strata has actually seen a modest rise — up by 0.5 per cent over the past 12 months.
The lower-priced stock is holding its value better and it’s probably where the majority of the market demand remains strong at the moment.
Q: What are the core market drivers?
A: Any market is dominated by two factors: supply and demand. The supply side has moved to be a little bit high, but demand has also started to taper off. You can read that in population change — a slowing migration. When you look back through the market cycles, it’s not unheard of to see the downward phase values move backwards between five and 10 per cent over a couple of years. And I think we’re right at the beginning of that cycle.
I’m not saying values will fall by that much, but we’ll see that gradual fall in values and then the market will level out for a few years, before we see the next growth cycle — which is probably three to five years away.
Q: Any trends you’ve seen?
Property Report: Perth's longest selling suburbs for units.
A: We’re seeing lifestyle buyers come back into the market — particularly regionally in areas not associated with mining, so the seachange phenomenon.
Q: How does Perth fit into the national picture? Are we the buyers’ market of the nation?
A: The only three markets that are shifting backwards at the moment are Darwin, Hobart and Perth. Across the capital cities, you can group the marketplace into three broad categories; those (led by Darwin) that are currently retracing, the markets that are not really doing anything at all (Brisbane, Adelaide and Canberra), and then you’ve got the boom cities (Sydney and Melbourne). In those two cities, values post-GFC have risen 75 per cent and 65 per cent respectively.
Q: Is now a good time to buy in Perth?
Property Report: Perth's quickest selling suburbs for units.
A: It always comes down to individual plans. For FHBs or someone with a longer-term plan in the housing market, now is a great time to buy. There may be some more falls in the market but they certainly have time on their side, and a lot more negotiability. I don’t think anybody needs to rush into the market place now; certainly do your research and due diligence, but the best thing about the current conditions is that interest rates remain so low.
Even if there are some further adjustments downwards, if you have a long-term plan it doesn’t really matter that much. You are taking advantage of the low cost of debt, and the strong buying conditions.