Property Market Outlook for 2020: Positive signs for growth
Perth Property Market Update, 6 March 2020
The Reserve Bank of Australia cut interest rates this week to 0.50%. All big four banks have passed on the cut, with Westpac moving the quickest.
RBA governor Philip Lowe said coronavirus is having a significant effect on the education and travel sectors.
“The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected.”
Dr Lowe noted “further signs of a pick-up in established housing markets” and said home prices in Australia are “rising in most markets, in some cases quite strongly.”
“Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued.”
“Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.”
Stay up to date with the latest RBA rate outlook at InfoChoice.
Recovery takes shape in Perth
The median house value in Perth is now $442,691, according to the latest data released from CoreLogic this week. House values in Perth are down 4% over 12 months but are now showing signs of a turnaround.
For the first time since 2014, house values in Perth have increased for four consecutive months.
Over the month of February, Perth home values increased 0.3% said CoreLogic.
Investors name Perth as city with strongest outlook
Western Australia’s median house values are still around 15 per cent down from the peak during the mining boom. These numbers are exacerbated by Pilbara values. Homes purchased for $750,000 in 2012 in Pilbara mining towns have dropped below $300,000 in some cases. Rental returns have fallen from around $1,600 a week to around $370.
But in Perth the outlook for investors and homebuyers is rosier.
Perth may be the capital city with the strongest outlook for property prices and returns according to a survey of 401 property investors across Australia from Perth based property investment consultancy Momentum Wealth.
61 per cent of respondents ranked Perth as the market with the highest growth potential in the next three years.
Momentum Wealth’s Emma Everett said affordability, improving rental conditions and positive future indicators were behind the confidence.
Property prices will continue to rise in 2020. That’s the outlook delivered by several commentators and analysts as we kick this new year off.
Buyers and sellers are still capitalising on low interest rates and relaxed lending conditions.
Cooley’s auctioneer Damien Cooley told Domain that he believed prices would continue to rise.
“We thought the boom was over but maybe it is just the beginning,” Cooley said. “The only thing that I can see slowing the market down is if APRA steps in again and put the brakes on lending. A buyer’s ability to borrow money has a direct effect on prices rising or falling.”
If the momentum continues, the age-old problem of affordability could rear its head.
Areas such as Melbourne’s inner east including Collingwood (pictured) are experiencing strong price growth.
AMP Capital chief economist Shane Oliver said, “Affordability will become an issue again … Melbourne could [hit record highs] February or March and Sydney could be in May. They’ll continue to grow through the year because we’ll be in the same environment of low or even lower interest rates and we’re passing the peaks in units supply.”
The problems the property market could face will be driven by broader economic variables, including the health of the economy and what plays out at an international level. Trade wars, middle east/US tensions, even Brexit could have an impact on buyer confidence.
Interestingly, we tend to measure the success of the property market by focusing on Melbourne and Sydney.
And why not, currently they tell a positive story and dominate rising statistics:
Adelaide property outlook 2020
While buyer confidence is rising, the state of South Australia has its own economic battles.
While the labour market has improved in the past couple of years, the effective unemployment rate in South Australia is still above 9 per cent and the employment market is still soft,” RiskWise CEO Doron Peleg says.
Adelaide is not experiencing property price rises are strong as in Melbourne and Sydney.
“This has a strong connection with low population growth (only 0.8 per cent per annum) and, therefore, low demand for dwellings.
“While serviceability measures have improved due to the RBA’s interest rate cuts (with another expected sometime in the new year), the relatively high unemployment rate increases the risk of credit defaults.
“Those, combined with some properties that suffer from low demand, require special attention in relation to credit provisioning.”
That said, improved auction clearance rates do point to a better performance this year.
Northern Territory property outlook 2020
When talking about economic factors affecting the property market, the Northern Territory presents an interesting case study. Darwin (pictured below) has seen house prices fall over the last five years.
The region’s poor economy continues to play a part in its subdued property market with 15.6 per cent price reductions for houses in the past five years and 29.4 per cent for units.
Negative capital growth in recent years is due to population decreases following the end of the mining boom. This led to a lack of employment and high interstate emigration.
“While dwelling supply in relation to population growth is low and dwellings are very affordable, the low demand for housing makes the Northern Territory a risky area especially given the low level of private investment that is significantly below the growth levels during the mining boom,” Peleg says.
Darwin house prices have fallen 15.6 per cent over the past five years. It should be noted that more than 67 per cent of houses in the territory are owner-occupied.
Western Australia property outlook 2020
Economic activity in Western Australia is well below its 10-year average. Effective unemployment is significantly above the 10-year benchmark. Annual population growth of 1 per cent is the third lowest in the country.
As for the property market in Perth (pictured below), there is continued weakness with prices falling over the last few years.
However, buyer confidence is on the rise, particularly in Perth with housing finance increasing 15.1 per cent since February 2019 after a reduction of 2.4 per cent relative to August 2018.
CoreLogic tells us house and unit prices in Perth have declined by 8.6 per cent and 9 per cent in the past year, respectively.
Like the Northern Territory, Western Australia has been transitioning from the mining boom. The mining downturn led to a rise in mortgage arrears, low economic growth, a soft job market and low population growth.
House prices have declined by 9 per cent in the past year and in Perth, house and unit prices declined by 8.6 per cent and 9 per cent, respectively.
Low-performing areas for houses in the past year include Perth – North East (with -8.8 per cent capital growth), Perth – Inner (-8.4 per cent) and Perth – South West (-7.3 per cent).
The upside is Perth’s affordability and the small number of suburbs where houses have delivered reasonable capital growth.
On the bright side
It is not all doom and gloom for Perth.
ANZ senior economist Felicity Emmett says, “Perth has been weak for a very, very long time … while we’ve seen green shoots in Perth before and they’ve wilted. This time round we think the other economic indicators have turned. Population growth rose sharply and the labour market has really improved. We’ve also seen vacancy rates fall quite dramatically. They’re now down below the national average – that also suggests the environment for growth will be positive.”
‘There is a palpable hunger for properties in Sydney and Melbourne…”
Overall, Richard Wakelin of Wakelin Property Advisory believes the national outlook is positive. He says there is a “palpable hunger” for properties at present especially in Melbourne and Sydney. It is a sentiment he expects to continue and expand into Canberra and Brisbane.
Wakelin also believes an undersupply of property could take effect as owners hold onto their properties for longer for fear of not being able to buy equitable or better properties as replacements.
Those two factors could cause property price rises.
As he tells the Australian Financial Review:
“I therefore expect strong or solid price growth in most capital cities. Sydney and Melbourne may well see 8 per cent to 10 per cent growth in values over 2020. Canberra and Brisbane will deliver a 6 per cent to 8 per cent price rise for the year. In Adelaide and Hobart, values “will be 4 per cent to 6 per cent higher in a year’s time.
“Only Perth and Darwin will struggle off the back off specific economic weaknesses, but even out west and up north I expect prices to rise 2 per cent to 4 per cent over 12 months.”
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