The Perth property boom may have slowed from the highs reached in the past year, but experts say good fundamentals still underpin a market that has simply returned to more balanced conditions.
Perth’s median home value of $949,000 is 2.4% higher than a year ago, according to the latest realestate.com.au Home Price Report, but prices have declined 5.7% since the peak in March.
REA Group senior economist Anne Flaherty said the Perth market has swung in a different direction compared to a year ago, when it was one of the hottest markets in the country with annual price growth above 20%.
“It was seeing tons of investor demand, which was also contributing to strong growth in prices and now, if we fast forward 12 months’ time, we’ve had interest rates increase four times, and then we’ve also had a budget drop that dramatically reduces tax incentives for investors,” she said.
“Another interesting dynamic is even though buyer demand is really cool in Perth, if we look at underlying housing supply, Perth’s still a market that has a very substantial undersupply of homes relative to the size of its population.”
“Also we’ve seen a really big slowdown in new development activity in Perth, which is going to have consequences down the road, especially if population growth stays strong.”
Damian Collins from property advisory firm Momentum Wealth said as interest rate rises have taken hold, Perth has become a more a balanced market, where vendors were no longer fielding 10 offers when selling a home.
“The budget certainly had a big impact, certainly on sentiment, particularly across the board, and then secondly, for investors, of course, not being able to negatively gear anymore,” he said.
“It’s a huge cash flow impact. Investors are thin, and home buyers are a lot more cautious.”
The hot pace at which the market was running earlier in the year was not sustainable, Belle Property’s head of WA, Travis Coleman said.
“I think everyone would sit back and agree that that couldn’t continue. If anything, we’re just returning to what we would describe as a normal market where take you four to six weeks to find the right buyer,” he said.
“That buyer is shopping around, looking at other properties. They’re comparing your property against other properties, and they’ll make a decision based on education.”
The latest PropTrack Listings Report shows the number of new homes listed for sale in Perth during September was almost 20% higher than a year ago, with total housing stock up almost 36% compared to a year earlier.
Ms Flaherty said vendors were recognising that while they might be competing with more homes on the market, they still had a chance to make a big capital gain given strong growth in recent years.
However, the reduction in investor demand had played a bigger role on shifting market dynamics than in other cities, she said, with some buyers now trying to time the market.
“In the case of Perth, I think the tax changes might have had a relatively bigger impact,” she said.
“Obviously, interest rates impact all markets equally, in a sense but I think that Perth had been seeing a lot of a lot of investor interest, and so I think that that decrease in investor demand, and now the large amount of properties on the on the market for sale, it’s just taken the heat out of the market,” she said.
“I think buyers are probably cautious of when they buy because if home prices do continue to decline, they might be better to hold off.”
Prospective buyers were displaying two distinct responses to the change in market conditions, according to buyer’s agent Peter Gavalas of Resolve Property Solutions.
“One group thinks they’ll get a better deal if they wait,” he said. “The other thinks they have plenty of time because there aren’t as many buyers around.”
“They’re different reasons for waiting, but both can end with you missing the right property.”
He said assuming the fundamentals which had supported Perth’s strong growth had disappeared simply because prices had started falling was incorrect.
“Buyers waiting for further falls risk overlooking the fundamentals that have supported Perth’s market throughout its recent growth cycle,” he said.
“The underlying supply and demand imbalance hasn’t gone away. Perth’s population is still growing and we’re still not building enough homes to meet that demand.”
From a national perspective, Mr Coleman said Perth was undervalued, and great buying opportunities remained in what fundamentally was a strong market.
“We’re still undersupplied. It’s about pricing your property correctly and talking to your agents to achieve a good sale.
Following a period about six years ago where Perth property was under-priced, it had now reached fair value, Mr Collins said.
“It’s grown a lot where it sits in the mix compared to Brisbane, Adelaide, and Sydney,” he said.
“It’ll moderately decline for three to six months. Then when people get the sense that interest rates aren’t going up anymore, then you’ll start to see a bit of sentiment change.
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“That’s when I think we’ll start to see some recovery in the property market.”
Looking ahead, Ms Flaherty said based on the high volume of listings, Perth home prices were likely to decline further. “If interest rates increase again, that will be another blow,” she said.
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