So what happened in Perth’s inner north Property market in 2022?
Despite the Eastern States-based pundits predicting doom and gloom, not much overall is the answer.
Here at Red Fox, we’ve been saying for months that local market conditions didn’t support the questionable projections, and so far, we seem right. CoreLogic’s Perth index has hardly changed since May, when interest rates started rising.
The only surprise to us is the level of surprise at Perth’s resilience.
Could it be that those experts charged with reading the market failed to read the Perth market?
We were quick out of the gates
The year began strongly. The market recovery that started at the end of 2020 and continued throughout 2021 carried into January, with an extra flurry of activity following the opening of the borders (how long ago does that seem now?) in March and April.
Then interest rates started rising…
The unexpected introduction of the aforementioned interest rate rises, initially forecast for 2023, and rising inflation introduced nervousness to the market. As a result, the intensity that had been there at the start of the year relaxed, and price growth throughout the mid-months tailed off. We experienced minor price declines in August and September (0.2% and 0.4% respectively), but by October, that had slowed to a minimal -0.2%.
In November, one of the traditionally busiest months of the year, conditions further stabilised. We finished the month with a 0.1% higher median house price of $585,989, a 3.7% increase for the year.
It’s interesting to note that unit growth in Perth continues to trail houses, increasing only 1.6% overall for the last 11 months, to sit at $410,046 on 30 November. However, anecdotally we’re seeing an increase in investors returning to the market, which may bring some cheer back to the sector in 2023.
With consumer sentiment reportedly sitting at its lowest level since the GFC, things are by no means certain, but Perth’s continued low stock levels, WA’s strong economic situation, our affordability relative to other state capitals and our resilience to date despite seven months of dire market headlines, is a hopeful sign.
Time to turn our attention to some of the buying trends we saw this year.
“Drive away no more to pay” properties in high demand
Whether due to lack of time, shortage of trades, rises in material costs, or all three, we’ve noticed in 2022 that buyers strongly prefer renovated properties and move-in-ready homes.
This doesn’t necessarily mean sellers have to rip out and update still decent kitchens or bathrooms. Still, it does mean attending to all the maintenance items and refreshing the property, usually by painting, so buyers don’t need to spend money straight away.
Homes that buyers see as needing immediate “work” are struggling to attract substantial interest and typically perform poorly. As a result, the pool of buyers looking to put their stamp on something is now a tiny puddle.
The days of “we’re not going to do anything because the buyer probably won’t like it” are over. We don’t see that changing soon with build costs at current levels.
Luxe is more
Think you’ll make more money on your new build and renovations by cutting back on quality?
In Perth’s inner north, luxe is more.
You don’t need to go to town on high-end designer items. But properties with that extra attention to detail, like higher course ceilings, decent flooring, custom cabinetry, stone benchtops not just in the kitchen but also in the other wet areas, double vanities in the ensuite, quality tiling and fixtures, attractive alfresco entertaining areas and the current trend, butlers pantries, get far more eyeballs (and better prices) than those built purely to a budget in the hope of making more profit.
The market recognises and rewards higher calibre homes. And while buyers love a bit of bling and wow factor, the floorplan still needs to be practical – don’t ever downsize the bedrooms!
The rise of the rightsizer
Most people are familiar with the term downsizers, but we refer to many of our buyers and sellers as rightsizers. They are the second, third and fourth homebuyers swapping to something that’s a better fit for their lifestyle. Sometimes that’s a bigger home; sometimes, it’s a smaller one, and increasingly, it’s still a decent-sized but lower-maintenance one.
Rightsizers/downsizers are no longer just retirees. They are now families with older kids, often still at school, looking to spend less time looking after an unused backyard but still needing space. They can be single parents who have had to sell the family home but want to remain in the area where they have established connections and kids still at school. And they can be older retirees whose babes have long since flown the nest, looking for something more manageable while they turn their attention to other things, like travel.
Whatever their motivation for moving, what they don’t want to do is downgrade. Maintainin, or ideally increasing, their level of comfort is paramount.
Buyers in the inner north are location driven – they’re attracted to the convenience of being near the city, social precincts, quality schooling options and the ability to walk to the nearest cafe to get their morning coffee.
The local market will always have inbuilt demand purely due to location.
The rental market is crazy
Rental stock levels are 20.5% lower than they were a year ago, which was already down.
With interstate and overseas migration now in positive territory, for the first time since 2013, the increased demand and competition for rental properties has put further pressure on prices.
It’s a situation we don’t see easing soon. With construction delays holding up the release of new housing stock into the market, and much of that in outlying suburbs, we expect rental shortages and upward rental price pressures to remain in the inner north market for a while.
Even with interest rate rises, we expect the rental situation to drive more first-home buyers and investors into the multi-residential market where prices are yet to recover to their previous peak, unlike most houses. We think we’re already seeing the start of this locally.
Is the end to the lifting of the cash rate nigh?
There is much speculation that it will happen in 2023. Once it does, buyers will have a clearer idea of their lending capacity and budgets and be able to shop with more certainty.
When the cash rate levels out, we believe confidence will return to the market and any remaining hesitation to dissipate. As a result, the multi-residential market will likely re-commence its recovery, and if stock levels are still as low or close to low as they are now, house prices will rise further.
What about the risk of rising mortgage defaults?
Mortgage arrears are currently holding around record lows. Even when those on fixed rates, about 35% of all borrowers, have their terms expire in 2023 (about two-thirds), the tight local labour market and predictions of continuing low unemployment rates should provide a safety net. Perth’s relative affordability and much lower income-to-debt ratio than the East Coast will also help. We think the downside risk is low when you factor in high household savings, provided interest rates don’t move materially beyond the anticipated 3.1%.
Further, the areas that typically experience mortgage distress in times of higher interest rates in Perth aren’t the inner north suburbs, so hoping to snag a bargain bank repossession here is wishful thinking.
Buy now or wait?
At Red Fox, we think the time to buy is now while the heat is temporarily out of the market and prices are holding steady. There’s no evidence to suggest that Perth market conditions will worsen anytime soon and no evidence to suggest that we’ll go the same way as Sydney or Melbourne, whose softer conditions are already moderating.
Wait by all means, but understand that the odds and stats aren’t in your favour.
See you in 2023!
CoreLogic Home Value Index Released 1 December 2022