2016 Perth property market review: Are we there yet?

Same headline, just 12 months further on…

And buyers and sellers keep asking, “Are we there yet?”, “Have we hit the bottom?” or, “When do you think the market will recover?”.

Anyone have a crystal ball?!

In their December 2016 Month in Review, national property valuers Herron Todd White stated that they thought the Perth housing market was now at the bottom but provided no indication of a projected turnaround in performance in 2017.

Instead, they cited a recent Consumer Housing Market Sentiment survey by CoreLogic-TEG that found that only 20% of survey respondents believed Perth house prices would rise in 2017, 53% believed that they would be stable and 27% thought they would continue to fall. The same survey reported that when asked if now was a good time to buy a property or home in Perth, 80% of respondents said yes, but conversely in another question, 73% of respondents said that they thought the Perth housing market was still vulnerable to a significant correction in values.

The news in the Perth housing market hasn’t been pretty over the last 12 months but arguably could have been worse, with CoreLogic RP Data stating that house prices have reduced 3.43% for the year ending 30 November 2016. As of 13 December there were 15,423 properties listed for sale in the Perth metro area according to REIWA, which was minimally down on the 15,789 on the market at the same time last year.

Whilst the number of properties listed for sale has changed little in the last 12 months, sales volumes, being the total number of properties sold in Perth, has continued to fall, trending steadily downwards now since 2013 – see graph from Landgate below.

Since 2013 Perth has experienced falling migration rates due to the ongoing slowdown of the mining and construction sectors, impacting both demand for permanent housing as well as rental properties, and concerns remain around local unemployment (having risen from 4.1% to 6.5% in the last three years) and job security. Record low interest rates have done little to influence demand for property locally but one suspects that they have kept property prices propped up in some respects by keeping distressed sales at bay.

The worst hit…

I’ve said it before and I’ll say it again, the Perth market is not homogenous. Anecdotally and locally we’re seeing very subdued demand for properties at the lower end of the market, being units, apartments, townhouses and other multi residential developments, particularly those that are older and in need of maintenance, as buyers take advantage of current market conditions to cherry pick the best on offer.

Whilst research shows the drop in unit prices was not as high as for houses (-2.31% to the year end 30 November 2016), locally we’ve noticed a marked difference in performance between what people have bought multi-residential properties for in recent years versus what they are selling for now. Herron Todd White have made similar observations in their December review, quoting multiple examples of apartments having recently sold for hundreds of thousands of dollars less than what they were originally sold for a few years ago, including an apartment in South Perth purchased for $1.7m in 2010 having recently sold for $905,000. Whilst not on the same scale, we’ve seen significant reductions in sale prices of older 1 bedroom and 2 bedroom units with many of these now selling at their cheapest levels in years.

The (sort of) bright side…

Whilst prices aren’t what they were a few years ago, there are still some bright spots in the market. Again, anecdotally, we’re still seeing strong demand locally for good quality trade-up and family homes in the $800k to $1.2k bracket and also good demand for recently renovated character homes in the $600 to $800k bracket (provided they are priced appropriately!).

Properties that have been recently renovated or upgraded with little for buyers to spend or do are faring significantly better than those that are dated and/or needing work, as are new or near new homes that have been well finished, albeit sellers might not be realising quite what they invested into the build. Availability of stock also plays a factor, with those property types that are under-supplied relative to demand, such as good quality renovated and extended character homes on full blocks in the Avenues, or unique or architecturally designed homes in excellent condition that are not easily re-produced, also generally attracting good buyer interest and results.

When will the market recover?

That’s of course the question, and there seems to be no consistent view or answer. Those waiting for the market to “recover” to where it was in say mid to late 2013 before selling may be waiting a while, and if that’s you, you need to weigh up the costs of holding your property (mortgage, land tax, rates etc.) PLUS the continued wear and tear and depreciation that most owners fail to consider (what you’d be selling now won’t be what you’re selling in 12 months or 5 years – everything will be older and likely more dated and worn and closer to needing replacement), and when the market does start to improve, it will of course be likely to be improving for what you want to trade up to too! And there’s no guarantee that the market won’t fall further in the coming months or year, making the gap that you want to recover potentially even wider than it might be now – just ask those property owners that have been holding off selling for the last 18 months!

And if you’re looking to buy, remember that because of the delay in reporting sales you won’t know it was the bottom of the market until well and truly after the market has already turned. The smart money knows that property is meant to be a long term investment and we’re seeing buying opportunities now that we haven’t seen in the last ten years.

The choice is yours!

If you’re interested in reading more or accessing frequent market updates try checking out the following websites:

Herron Todd White htw.com.au
REIWA reiwa.com
Core Logic corelogic.com

And if you’re after a realistic update on the likely value of your current property or information on recent area sales, we’re always happy to help! Just call me on 0405 812 273 or email [email protected] for a complimentary suburb sales report or to book a market appraisal appointment.