Perth housing remains under-supplied

This week’s data reinforces our belief that Perth’s property market is cooling off. The 0.23% increase this week is shown in the chart below, which is the second-lowest growth this year. Perth has been witnessing its recent lower growth, illustrated in orange, despite hitting the 0.41% average in green the week prior. While some weeks will still rise near or above the average, the overall trend is for more sustainable growth.

?

Although the weekly increase has slowed, it still represents a rise of over $2,700 in the median house price over the past seven days—so when we say the market is “cooling,” it is essential to keep that in perspective. This year, Perth has seen an average weekly increase of $3,323 in the median house price, which exceeds most people’s weekly earnings. Currently, we estimate Perth’s median house price to be $792,000. As the following chart shows, if current growth trends continue, the median price is expected to reach around $825,000 by year-end. However, to demonstrate the cooling trend further, our projection at the beginning of July was for a median price exceeding $846,000.

?

The main factor behind the cooling of the local market is the growing supply of established dwellings for sale. However, demand for Perth property remains strong, with 917 transactions recorded last week. The following chart shows how steady demand has been in the 800-1000 range despite the historically low number of properties available. We expect weekly sales to stay robust, as the increased supply makes the market more attractive to buyers and reduces competition. Additionally, with Western Australia’s economy performing well—marked by low unemployment—and the possibility of an interest rate drop next year, strong demand will likely persist.

?

Although listings are increasing, they are still well below industry-accepted equilibriums. Since the beginning of July, listings for sale have increased by more than 50%, and there are now 4,751 properties on the market. The next chart shows that the gap between sales and listings has closed significantly, and if this gap continues to close, price growth should continue to slow.

?

?

While price growth may be slowing, the increased equity that homeowners have gained over the past few years is a welcome relief after the challenging period from 2015 to 2019. However, it is also crucial to ensure housing remains accessible for first-home buyers. Homeownership offers significant benefits: it contributes to well-being and is considered a key pillar of retirement income. Australia is already seeing more people carry mortgage debt into retirement, which increases dependence on the aged pension as many retirees use their superannuation to pay off debt. If homeownership is delayed or made unattainable due to high prices, it carries social and economic costs for society.

?

In an ideal scenario, Perth property prices would see steady, sustainable growth rather than the typical boom-bust cycle of the local market. We suggest a nominal growth rate of around 8% annually or 0.15% weekly. The following chart, which is relatively new, shows the 28-day moving average. Ideally, we would like the current average of 0.26% to continue decreasing and stabilize around a weekly growth rate of 0.15%.

?

To wrap up this week, we will examine the addition of new dwellings to the overall housing stock. The rate of new housing entering the market relative to population growth will significantly influence prices. As we highlighted last week, Perth’s dwelling completion rate for the March quarter remains below the level of net interstate and overseas migration.

?

According to the Australian Bureau of Statistics (ABS), there were 4,061 dwelling commencements and 3,814 completions. The following chart offers an interesting perspective, showing a spike in building commencements in 2014, followed by a corresponding increase in completions one to two years later. The primary cause of Perth’s property downturn from 2015 to 2019 was the oversupply of new dwellings and a slowdown in population growth after the mining boom. However, the uptick in dwelling commencements during the pandemic in 2021 has yet to result in a corresponding increase in completions, which explains why the market is still undersupplied.

?

?

Given the recent number of commencements, the volume of work still in progress, and the limited capacity of the building industry due to the shortage of available tradespeople, it seems unlikely that there will be a sudden influx of new housing that could lead the market from undersupplied to oversupplied. So, even though the market is cooling, it still heavily favours sellers.

Review by Ryan Brierty