Following a record month of sales for us here at Red Fox, we weren’t surprised to see Perth house prices continue to rise through April.

CoreLogic reported a 1.1% increase in dwelling values for Perth for the month ending 30 April 2022, with prices up 2.4% overall for the quarter. 

As we’ve noted in other recent monthly updates, demand for character properties and quality trade-up homes continues to outstrip that of the multi-residential market. 

The difference appears to be due to a combination of continued undersupply of houses versus an oversupply of unit stock, subdued investor activity, and the dominance of trade-up buyers locally.

One interesting trend we’ve been observing for many months in the inner north is the rise in the number of single women buying property, particularly in the $400k to $900k price bracket. 

While our observations are anecdotal, we’re of the view that this segment of buyers is having a significant influence on the local market. Stay tuned for a future blog with our views on how sellers can tap into this trend – and the danger in ignoring their requirements.

Now let’s address the burning question on everyone’s lips:

Will the increase in interest rates slow down the market?

First, let’s get some context.

1. East versus West

When the press talks about the ‘Australian’ property market, what they’re really talking about is the east coast, or more specifically, Sydney and Melbourne.

Given their size, to most property pundits and economists, they’re the only markets that matter.

The Perth market has never been in step with the East Coast. We resolutely march to our own tune.

In 2006, thanks to the mining boom, we were the most expensive capital city in Australia. Now we’re the cheapest. 

This brings us to the next point…

2. Affordability

Perth is the most affordable capital city in Australia to buy a home. The % of gross income spent on a mortgage in Perth is 21%, in Sydney it’s 61%* – see the difference?

What we’ve been experiencing in Perth over the last two years is a market recovery. Essentially there’s been minimal growth overall in Perth property prices since 2010. We’ve literally only just nudged past our last peak, which was in March 2014.

And that’s for the Perth market overall. There are still suburbs and property types (eg the multi-res market) that are behind their previous peak values.

3. Undersupply

There’s a fraction over 8000 properties for sale in Perth currently. That’s significantly below the 11,000 to 12,000 considered market equilibrium. The vast majority of homes we’re selling at Red Fox are attracting multiple offers and our average days on market are sitting at 10 (that’s over a 12 month period). The current Perth market average is 14. 

There are simply not enough properties in the inner North of Perth, houses specifically, to satisfy buyer demand.

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Overseas migration has yet to gather steam, and even if some owners do slip into default, it’s unlikely to be at a level that will get us back to balance any time soon, let alone oversupply. That automatically lends itself to continued property price rises at least for 2022.

4. Record. Low. Interest rates.

The question of a rate rise was never if, just when.

Whilst there is no such thing as ‘normal’, the situation we’ve had in the last few years was never going to be sustainable.

For comparison, payments for the same size mortgage are half what they were in 2008*. A 0.25% rise equates to an extra $20 a week on an average $600,000 loan*.

Many households have used the record low rates in recent years to reduce the size of their loans and get ahead on their savings and repayments.

That said, in cities where housing affordability is significantly less (ie Sydney and Melbourne…) the extent to which they feel the rise, combined with the cost of living pressures, will be greater. Hence why prices are expected to soften in those specific markets.

5. Serviceability buffers

These are used to test a borrower’s capacity to repay and have been operating for many years. 

APRA revised the buffer in October 2021 from at least 2.5% over the lender’s loan interest rate to at least 3.0%. Anyone who has borrowed should have already had a rate rise factored in.

6. WA is currently the best-performing state economy with the lowest unemployment rate (3.4%)  

Things are looking pretty rosy economically here in WA. This means the majority of people who own property have or can get jobs that hopefully enable them to pay their mortgages. We’ve also got strong employment growth – 40% of the jobs created in Australia in March were created here in WA**.

What we do need though is wage growth.

7. The Federal Election

Thanks to the imminent election, we’re in a media environment where every economic issue is being hyper scrutinised and sensationalised. Remember the predicted 20 to 30% decrease that was going to happen as a result of COVID? Yep…

So no, we don’t believe the increase in interest rates will interfere with the anticipated overall rise of Perth property prices in 2022. 

There may be an odd bump in the road. But I wouldn’t be betting on a downturn this year.

For a no-obligation, confidential chat to gauge where your property might sit in the current market and run through your options, call Nat now on 0405 812 273 – we’d love to help.



**Source: State Government of Western Australia