Which Way for the Property Markets?

by Hayden Groves

Earlier this week, ANZ published their market predictions for Australia’s property market for the remainder of this year and for 2023. In short, they reckon Perth property values will inevitably follow east coast markets in a downward trajectory through to the end of next year, predicting Perth home values will fall by 7 percent. NAB reckon Perth values will dip 11.4 per cent.

Sadly, this is yet another example of an east-coast based bean counter squirrelled away in a back room handed the task of predicting our local property market from afar. I recall when COVID-19 first hit, all the banks thought Australian property values would fall an average of 20 percent; they were about 40 percent out. 

With bank economists’ recent predictions spectacularly failing in recent times, it’s reasonable to question the veracity of their current opinions, especially when it looks so obviously east-coast inspired. 

Undoubtedly, predicting house price movements is hard. There are multiple variables, local or world events can impact, economic conditions change and market sentiment all play a part. However, there is little evidence to suggest Perth property values should fall at all in the short to medium term.

One of the major drivers of markets is, of course, interest rates. It is widely predicted interest rate rises will settle within the next 9 to 15 months, leaving a typical variable mortgage rate of about 5.8 percent; historically relatively low. At this level, this will add about $880 per month to the average Perth mortgage compared to their lowest point. That will be tough for many, but manageable by most. Sydney might be different with such a rate rise adding about $1750 per month to the average mortgage – ouch.

Migration is moving in the right direction too, keeping demand for housing strong in an under-supplied market. Overall, for-sale listings in Perth are 14 percent below this time last year and 32 percent below the five-year average. At the same time, sales volumes here remain strong, up a whopping 52 percent on the five-year average. 

And the main reason why Perth property values shouldn’t fall? Affordability. Perth remains the most affordable capital city in Australia at a median house price of $585,000. Adelaide is next on the list at $699,000. Our average of 26.6 percent of earnings going to service our mortgage is well below the national average of 37.3 percent. 

As east coast markets tank, surely people will look west to take advantage of our enviable lifestyle and relatively cheap housing. I think ANZ (and the other big banks) have got their prediction about Perth’s property market badly wrong.