Are We Close to Market Peak?

For a laugh, I often respond to the question, “When do you think the market will peak?”, by giving a specific date. It’s amusing because markets don’t normally behave in a linear, predicable way. In this current market, that date is some way off, notwithstanding some significant economic calamity occurring in the meantime.

Our mining-led economy has not been impacted by the recent falls in iron ore and lithium prices, with Perth property market continuing to lead the nation, now well ahead of Queensland and South Australia. Sydney and particularly Melbourne are markets in decline as affordability constraint team up with higher interest rates and cost of living pressures. Both cities declined in value by 0.1 percent last month. Stock levels are rising in these major capitals with Ray White group reporting the highest level of spring listings ever recorded in these markets.

Rental affordability continues to decline

Perth’s house prices are up 24.6 percent year-to-date, a figure that is unsustainable across multiple years, to record a mean house price in August of $864,989. Brisbane nudged $1,000,000 to record $980,741 and Adelaide is at $854,659. Sydney’s mean house price of $1,601,518 is probably at current peak and Melbourne’s property-tax-loving government will continue to drive house prices down below its current $1,035,054 mean house price in coming months.

The Real Estate Institute of Australia’s latest affordability report was released this week finding further deterioration in housing affordability across the nation. The average loan repayment now amounts to 48.1 percent of median family income, up 1.3 percent for the June quarter. Unsurprisingly, Western Australia’s housing affordability worsened last quarter by 1.7 percent with 39.5 percent of median weekly family income of $2,630 going to servicing the average sized loan. Victoria’s falling house prices helped affordability in that state with average weekly incomes of $2,510 losing 45.8 percent to average loan repayments.

Rental affordability continues to decline too with West Australians paying 23.6 percent of weekly incomes to rent, up from 21.8 percent last year. Over time, housing affordability has declined by 11.3 percentage points over the past twenty years, with rental affordability deteriorating by only 3 percentage points over the same period.

Despite much media coverage and political hyperbole about the rental crisis, it remains far more affordable to rent than own property. Across the nation, rental affordability has declined 2.4 percentage points over the past five years and 0.2 percentage points over ten years. Comparatively, home ownership affordability declined 16.2 and 14.5 percentage points during the same periods. It appears that mum and dad investors have done an exceptional job in delivering relatively affordable rental homes for millions of Australians, despite governments and the Greens actively pursuing policies that discourage them to do so.

Perth’s property market will continue to rise, perhaps at a slower pace for the next quarter as affordability constraints emerge. And as for a specific date for the market peak – 29^th February or April 1^st next year.