Listings Continue to Fall

We will begin this week by recapping Perth’s property sales and listings over the past three weeks.

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Perth recorded 911 transactions this week. With sales at the low end of our 800-1000 weekly range during July and August, transactions have picked up over the past three weeks, as demonstrated in the following chart. What is also curious is how the blue line representing weekly sales seems much smoother and less erratic compared to the first six months of this year. Without more research, it is hard to know why this is, but it resembles a more stable market.

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One reason the market may be so stable is that the current low levels of supply constrain buyer activity to a consistent (even though relatively strong) level. We could hypothesise that with the current robust demand for property, if the number of residential listings for sale increased significantly, leaving buyers more options, sales would jump dramatically and erratically.

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That hypothetical is definitely not representative of Perth’s market. Despite the downward trend recently flattening in July and August, listings show no signs of increasing. In fact, properties for sale dropped by nearly 2.5% over the past three weeks to 5,084, and there is a distinct possibility that there may soon be less than 5,000 properties for sale, which is almost unbelievable. The drop in the supply of established dwellings over the past four years is breathtaking. Furthermore, the completion of new houses is at a trickle, so there is little relief in sight for the under-supplied market. The following chart demonstrates the decline in properties for sale over the past four years visually.

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While Perth’s property market has over 800 transactions every week and approximately 5,000 properties for sale, it is no wonder that prices keep rising.? Perth recorded a 0.25% rise this week. As our “Perth Property Price Growth & Forecast 2023” chart below reveals, prices are up 5.3% this year, and the trend is so linear that the projected growth of 9% for 2023 appears more likely each week.

With interest rates now very likely to be on hold unless inflation increases (minimal chance), we see the most significant potential negative impact on property prices coming from increased unemployment. Unemployment and economic growth have a symbiotic relationship whereby lower economic growth means fewer jobs, while higher unemployment reduces household consumption, the main driver of economic growth.

Last week, the Australian Bureau of Statistics released the June quarter Gross Domestic Product (GDP) figures, which revealed the Australian economy travelling relatively comfortably and increasing by 0.4% for the quarter and 2.1% for the year. However, consumption, the largest component of GDP, particularly household spending, contributed only 0.1%. The cutback in spending, more noticeably discretionary spending (non-essentials), is a concern because household savings have declined to levels before the pandemic. The fact that Australians are reducing spending and saving less shows how mortgage interest rates and inflation have impacted household budgets.

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Closer to home, State Final Demand (SFD) evaluates economic growth for the states and territories and measures government consumption, government investment, household consumption and household investment but does not include net exports (exports minus imports).

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The following table tells us that while WA has one of the lowest SFDs, the WA government has the lowest consumption growth (actually negative), and WA households have the highest consumption growth. Furthermore, while public (government) investment in gross fixed capital formation is positive for any economy because it usually equates to greater efficiencies, WA’s SFD is not overly reliant on government investment to generate economic growth compared to the other states. Overall, we want lower government consumption but growth in each remaining component of SFD.

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Source: ABS. https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

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WA’s economic growth and employment are currently very sound. WA’s unemployment rate is at 3.5% and our preferred measure of labour output, monthly hours worked, is still increasing, as demonstrated in the following chart.

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While we are very wary of and have been reporting the declining Chinese economy, there are no immediate signs of danger for the WA economy. If unemployment does not rise dramatically, population growth maintains its current levels, and interest rates remain on hold, it is hard to see why property prices will not continue to grow.

Review c/o Ryan Brierty .