The impact of the rise in interest rates has resulted in a slowing in the housing pricing market on the east coast. With headlines of the past week dominated by rising interest rates, and the beginning of a decrease in dwelling values across the eastern coast, it may come as a surprise that Perth’s property market has slowly reached a record new high. A 1.1% rise in April saw median dwelling house prices reach a record new high
Many households in Melbourne and Sydney are spending around 40% of their disposable income on mortgage repayments, according to data from the Real Estate Institute of Australia. Households in Perth, however, are spending circa 26% on meeting loan repayments.
While the higher-priced east coast cities will certainly feel the pinch, this won’t be the case in Perth. Only recently has Perth overtaken its previous median price record, which was set in 2014. Despite the recent growth, Perth remains one of the most affordable capital cities in Australia. Historically, Perth residential prices have had a unique relationship with higher interest rates and it is not unusual for Perth to be counter-cyclical to the eastern markets.
In terms of supply, the Perth rental market has continued to tighten, with the vacancy rate currently 0.7%. This is the lowest rate ever recorded by REIWA in 40 years. As previously noted, a distinct lack of supply in both the rental and sales markets will often lead to upward pressure on property values. Supply chain constraints and labour shortages have also dampened the development pipeline, making it unlikely there will be a significant rise in housing stock any time soon. Border openings will also weigh on the market, interstate and international arrivals will only add fuel to the demand fire.
While official data since the border opened is not yet available, the government expects Western Australia’s population to exceed 3.1 million by 2031, signifying housing stock will need to boost significantly between now and then to service demand. Perth is expected to continue its recovery despite the rate increases, with moderate growth predicted for the next 2-3 years.
According to CoreLogic, a 1.1% rise in values through April took market values 0.9% higher than the previous record, from June 2014, at $552,128. This means it has taken 94 months for the Perth market to recover from its previous high. Since the pandemic, Perth’s dwelling values have risen by a cumulative 24.5% from June 2020 to last month.
It should be noted that Perth’s median dwelling have followed extreme cyclical movements in line with the nature of Western Australia’s boom and bust resource sector. House prices for example more than doubled between January 2000 and January 2007, which coincides when private business investment associated with mining doubled. Employment growth in the sector also increased by 73% between February 2000 and February 2007.
Mining and Construction Employment Growth
Perth even had a brief stint as having the highest median dwelling value of any capital city between 2006 to 2008.Although the global financial crisis began in 2008, and there was some disruption to employment activity, the high levels of demand for commodities remained until the mid-2010s.
Following a steel glut in China, demand for iron ore reduced significantly. Fortunes reversed, with unemployment surging to 7.1% in March 2018 (then a 16-year high) with the state’s population turning negative. Based on the indexed median dwelling value, $95,000 was lost over a period of 5.3 years, with values not much higher than they were since 2006.
Outlook for Perth
The recent surge in growth has been led by the housing market, with units still 13.6% below the high seen in September 2013.Although prices cooled during the end of 2021, a resurgence was witnessed through the March 2022 quarter. Mining employment should continue to rise given global commodity export disruptions fuelled by the Russian invasion of Ukraine. A tight labour market, however, may prevent these gains from being fully realised. Despite all of this, Perth remains relatively affordable, with the second-lowest dwelling value of the capital cities (behind Darwin).
A short term increase in demand from the investor segment may also occur, with rental yields across Perth averaging 4.4%. Lending indicators data from the ABS show investors currently comprise only 25.7% of mortgage demand in WA, well below the national average of 35.2% and the second lowest proportion of investment activity across the states and territories after Darwin.
Several Perth suburbs have joined the million-dollar club after their median house price grew to seven figures during the year to June.
Domain’s March Quarterly House Price Report, released today, shows Mount Hawthorn, Kensington and Gwelup have all seen median house prices jump the $1 million mark. There are now 28 Perth suburbs with a median house price above $1 million, with the most expensive in the western suburbs where the average cost of home in Cottesloe and City Beach now tops more than $2 million, and in Dalkeith, $3 million.
And more suburbs are tipped to follow if there is a new wave of relocations after WA’s hard border lifted. The report also shows the Perth property market has reached a significant milestone, with median house prices reaching a record high of $622,030. The previous record set in 2014 was $615,917. Domain chief of research and economics Dr Nicola Powell said Perth’s buyer demand was soaring and the volume of properties sold over the March quarter was 15 per cent above the five-year average.
Latest Perth – Million-dollar Suburbs
| Suburb | Median March 22 | Annual Change | Median March 21 | 5 Year Change % |
| Gwelup | $1,000 000 | 21.4% | $823, 750 | 19.8% |
| Kensington | $1,015,000 | 21.6% | $835,000 | 20.1% |
| Mt. Hawthorn | $1, 006,250 | 13.8% | $884,250 | 16.2% |
Perth may also see a short-term increase in demand from the investor segment as a result of the downturn in the east. Rental yields across Perth dwellings are averaging 4.4 per cent gross – the highest of any state capital, despite positive movements in property prices, the higher interest rates could slow down the recovery in Perth. Perth may eventually follow other Australian markets into a broad-based downswing as a result, just as record-low interest rates aided the recent recovery.
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