Spring property preview: What’s really happening in our real estate markets?

Well, the election result will be known very soon, confidence will be rising, interest rates will remain low and affordability will be the best for many years. All this suggests we’re in for some good times, so it’s probably opportune to do a whip-round Australia and see how property is performing.

What the stats show
Our capital city housing markets bottomed out around May last year and RP Data reported that capital city dwelling values rose in all capital cities other than Hobart over the last year. Not surprisingly, once again our capital cities significantly outperformed regional property markets.

Source: RPData

House prices are rising in part because Australia’s permanent population jumped by close to 400,000 people last year – that’s enough people to populate a city the size of Canberra or Newcastle. That along with rising consumer confidence and lower interest rates means higher housing demand, more construction, better job prospects and a boost to our economy.

What these big picture figures don’t show is how fragmented our markets are with different states, different price points and different types of properties behaving differently.

Major property markets in a little more detail

Sydney
Median house price: $645,000; 7.3% increase in last 12 months.
Median unit price: $500,000; 3.2% increase in last 12 months.
Vacancy Rate: 1.9%

The Sydney market continued to perform strongly with house prices now at record levels, and it’s likely that prices will continue climbing.

The Harbour City market is strong because jobs are being created there. In fact half the new jobs created in Australia last year were in New South Wales and most in Sydney.

While first home buyers are still sitting on the sidelines, and the top end of the market is still suffering from an oversupply of property relative to the reduced demand, gentrified suburbs within close proximity to the city, transport, amenities and infrastructure are performing well.

In particular, well-located apartments in the inner western suburbs and Sydney’s eastern suburbs are being snapped up by investors and owner occupiers at hotly contested auctions, according to George Raptis, director of Metropole Property Strategists in Sydney.

“The high auction clearance rates we’ve experienced over the last few months are a sign of how strong certain segments of the market are. In particular, investors are actively chasing well-located properties attracted by high yields and the prospects of strong capital growth. With 21% less stock on the market for sale than 12 months ago and a shortage of good quality properties amongst those properties for sale, I can see Sydney prices continuing to rise,” says Raptis.

Melbourne
Median house price: $530,000; 4.4% increase in last 12 months.
Median unit price: $435,000; 3.1% increase in last 12 months.
Vacancy Rate: 2.9%

Melbourne has been the surprise performer over the last year, but different segments of the Melbourne housing market are at different stages of the property cycle.

While there is still an oversupply of property at the top end, there is more competition for properties in the middle range of the market where there is a shortage of well-located properties. This has been evident in strong auction clearance rates this year – usually in the 70% range – while this time last year it was in the 50% range.

But there are some segments of the Melbourne property market to avoid.

“There is a significant oversupply of newly built house-and-land packages in Melbourne’s outer northern and western suburbs where buyers are showing a preference for two to three-year-old homes which can be bought considerably cheaper than new stock” said Keith Franklin, of Metropole Property Strategists in Melbourne,

“There is also an oversupply of inner-city CBD apartments and there are many more apartments coming on stream in the next few years at a time when there is less demand from the tenant demographic that rents in the CBD,” adds Franklin.

“Currently, there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations” he says.

Brisbane
Median house price: $450,000; 1.0% increase in last 12 months.
Median unit price: $373,500; -0.3% decrease in last 12 months.
Vacancy Rate: 2.1%

House prices in Brisbane started to turn last year but have only risen 1.7% from their lowest point. This is in part because Brisbane’s economy is struggling to recover from the significant job-shedding of last year.

Having said that, there’s not one Brisbane market – there are many individual markets and these markets are fragmented.

While buyer activity in Brisbane’s outer suburbs remains subdued, sales of homes in inner-ring established suburbs continue to show signs of improvement. Houses are starting to sell faster and the number of property transactions is 13% higher than last year – all signs the market has bottomed

Prices are still falling in Ipswich (-3.2) and Caboolture (-6.1%), while Logan and Redlands regions are exhibiting minimal growth, but there are good investment opportunities buying a home on a good block of land in Brisbane’s inner and south-east inner suburbs which have had stronger growth and a resurgence of buyer activity.

Perth
Median house price: $510,000; 8.8% increase in last 12 months.
Median unit price: $415,000; 1.6% decrease in last 12 months.
Vacancy Rate: 1.5%

The Perth housing market continues to rise on the back of a strong local economy, record levels of interstate migration into Western Australia, increasing confidence and strong buyer activity.

According to Damian Collins director of Momentum Wealth:

“The activity is still concentrated around the median price, with many first home buyers still active and competing against investors for properties under $500,000.

“With around 9000 properties for sale this is below what is considered to be a balanced market. Our buyer agents are seeing this on the ground, with multiple offers on a number of properties. The low interest rates and high rental prices have encouraged many people to move from the rental market into home ownership and we have seen a subsequent increase in rental vacancy rates, where the vacancy rate has increased to over 3% and rents have declined slightly. The higher prices and lower rents have meant that the average yield for investors has come back to around 5%.

“There have been some significant changes to the residential planning codes in Perth.

“From August 2, ancillary accommodation, commonly known as “granny flats”, can now be built and rented separately. This is a strong opportunity for investors to increase their rental returns with an average yield on a separately rented house and granny flat likely to be over 7% in quality areas within 15kms of the CBD.

“Also the changes to the residential planning codes have further increased development opportunities for apartments and there are currently strong margins on development projects.

“Overall the Perth market is still in growth mode, however, with the recent run up in prices and lower rents, we expect market growth to be at a slower rate, but still strong opportunities in some areas. Investors need to be selective in their property choices and consider opportunities to create their own growth through renovations and development.”

Adelaide
Median house price: $395,000; 1.7% increase in last 12 months.
Median unit price: $332,500; 5% decrease in last 12 months.
Vacancy Rate: 1.6%

Adelaide’s housing market has essentially done nothing since the beginning of 2008, in line with its underperforming economy, but there are now signs of a gradual recovery in buyer activity.

Darwin
Median house price: $520,000; 0.7% increase in last 12 months.
Median unit price: $457,500; 6.0% increase in last 12 months.
Vacancy Rate: 0.8%

The Darwin property market was the strongest performer for a few years, fuelled by strong investor sentiment, but the excitement seems to be over (at least in the short term.) I’ve always found investor-driven markets more volatile than our big capital cities and that’s why I avoid them.

Hobart
Median house price: $315,000; 0.0% increase in last 12 months.
Median unit price: $270,000; -4.7% decrease in last 12 months.
Vacancy Rate: 2.5%

The Hobart housing market is showing early signs of stabilising after a prolonged period of subdued activity.

Canberra
Median house price: $555,000; 4.5% increase in last 12 months.
Median unit price: $457,500; -0.8% decrease in last 12 months.
Vacancy Rate: 1.7%

The Canberra housing market is slowly showing signs of activity after a flat period for much of the last year.

Source of Data: RPData, SQM Research

What next?

The overall fundamentals for property are sound and our property markets should keep consolidating.

Interest rates are likely to drop one or two more times as our economy hits a few more speed bumps causing unemployment to rise a little.

But, generally, our household budgets are in good shape as we’ve been consolidating our debts, and once the uncertainty of the election is out of the way, people will start getting on with their lives.

Our population is growing strongly and almost everyone who wants a job has a job. People are still getting married, having babies, moving interstate or getting divorced – they all need accommodation.

We’re in the early upturn stage of the property cycle in most states and buyers are returning, slowly taking up available stock and gently pushing up prices in the middle price range.

However, these purchasers are being very selective. Well-located, well-priced properties are selling, but properties in secondary locations or those in areas of oversupply are languishing.

The prestige end of the market, which has been hit hard over the last five years, will also slowly improve as our economy and business sentiment picks up.

Rising consumer confidence, low interest rates, a stable economy, rising rents and more good news in the media are likely to augur well for our property markets this year.

But you can’t just buy any property

Home buyers and investors will have to do careful due diligence – they won’t have booming property prices to cover up mistakes.

This means they will need to buy the right type of property…

One that has a level of scarcity, meaning it will be in continuous strong demand by owner occupiers (to keep pushing up its value) and tenants (to help subsidise your mortgage); in the right location (one that has outperformed the long-term averages), at the right time in the property cycle (that would be now in many states) and for the right price.

Then hold it as a long-term investment and reap the rewards.

Want to know what I’ve been up to and what I’m buying?

I’ll be explaining what I’m doing and, just as importantly, what I’m not doing at our upcoming Property & Economic Market Update one-day trainings I will be holding around Australia in August and September.

I won’t be conducting similar seminars until well into next year, so please click here now and get the full details and reserve your place. I’ll be joined by various local property, tax and finance experts in each state.

We plan to give you straight-forward, no nonsense, practical steps and honest answers to improve your property performance this year and into the future. To reserve your place or to find out more, simply click here now and I’ll give you my personal guarantee your time will be well spent. I’m looking forward to seeing you on the day.

Michael Yardney is a director of Metropole Property Strategists, who create wealth for their clients through independent, unbiased property advice and advocacy. Subscribe to his Property Update blog.