Eye of the Storm - Perth's Residential Housing Market

There couldn’t be a better way to describe the general Perth Residential Housing Market, other than being dead centre in the eye of the storm.

The market is confused and vendors are anxious. Weekly sale transactions are dropping with the majority of selling agents reporting a significant reduction in home open attendance. Buyers are fracturing into two separate teams, Team FOOP vs Team FOMO. Team FOOP (fear of over paying) has no urgency, is hesitant to put pen to paper and firmly believes the rising interest rate environment is going to send the Perth Residential Housing Market descending into freefall. Team FOMO (fear of missing out) knows current market conditions offer the best opportunity to ‘buy well’ and the best buying climate we have seen in three years, especially in prime established upgrader markets like Floreat, Mount Hawthorn and East Fremantle where strong buyer competition still exists.

The big question looming – is the Perth residential property market about to correct?

My vote is No. Here are my top 5 reasons why; ?

1. Strong Labour Market

Our unemployment rate is currently at 2.7%, the lowest it’s been in 13 years and that’s driving some serious wage growth. West Australians enjoy the second highest average salary, being nearly $20,000 higher on average than many other states, $10,000 more than NSW and Victoria. While native West Australian's are enjoying a healthier pay packet, strong wages and affordable housing are luring people across the Nullabor once again.

2. Affordable Housing

Perth offers a brilliant lifestyle (I’ll admit I’m a little biased here). To top this off - we’re the second most affordable city in Australia to buy a house and the third most affordable city to rent. The iron curtain (hard border) has fallen and we are seeing the start of a mass migration west once again. While strong wages are a big attraction, we are seeing many native West Australians currently residing east returning home, especially those with young families. The opportunity to purchase a nicer, potentially larger home in a good location, offering better lifestyle and shorter commutes than their alternative options in Sydney or Melbourne for less money is definitely enticing.

3. Rental Market Crisis

We have a rental market on its knees with a vacancy rate of 0.4% (source: Domain). Ask anyone who’s looking for a rental at the moment to get a glimpse of what that’s like, its ugly. Picture over 20-30 groups at a rental viewing all prepared to offer above asking rent. This combined with rising interest rates is putting serious upward pressure on rental values. As rents continue to increase, the investors are lured in while existing tenants are push into the owner occupier market.

4. Supply vs Demand

Perth is still outrageously under supplied, with a fraction over 8,000 properties available to purchase (source: REIWA). Of the 8,000 properties, there are circa 2,200 units and 1,800 blocks of land which leaves on only 4,000 established houses available to buy. When it comes to established housing, buyers still outnumber sellers 4:1 in most suburbs, with the?hotter ‘upgrader’ suburbs in 10:1 range.

The demand for land and the general appetite to build has, at the risk of being a little blunt, dropped off a cliff as prospective buyers avoid the cost and uncertainty risk of building and instead turn to established housing. This is having the double impact of putting more pressure on the established housing market and reducing our overall supply of available housing.

The broader perspective shows a total accommodation pool of circa 7,900 dwellings (6,200 properties for sale, 1,700 available rentals), yet there are 50,000-60,000 people required to fulfil current SEEK job vacancies and trade shortages - and they all need to live somewhere.

5. Interest Rates

Despite interest rates going up, we need to remember they are still historically low and probably will be for the next 12 months at least. Upgraders & First Home Buyers are still very active in the market. Their demand won’t exit the market as rates push higher. Rather, these buyers will alter their purchase decision around how much they want to spend and where they are prepared to live. People need to live somewhere, not all first home buyers want to keep living with mum and dad, likewise upgraders and growing families will continue to want more space. Sitting on the sidelines and renting isn’t the same option it was 2 years ago. ?

When will we see the market kick off again?

The catalyst for the next resurgence will all revolve around interest rate certainty. We all know rates are on the rise, but no one truly knows where rates will level off. It's hard for buyers to commit to a purchase decision when they don't have certainty around what their mortgage repayments will look like. Once the RBA let go of the cash rate levers and we get a sense of the 'new normal', buyers can start to more comfortably budget expenses and repayment affordability. Then we will see Team FOOP join Team FOMO once again.?