State by state: An April update on Australia’s property markets

It’s been a tumultuous month for our economy and our property markets.

And while I intend to outline the latest end-of-month findings from Corelogic, I recognise how out of date they are already.

So let’s use this data as a baseline for my future monthly market updates as we continue grappling with the ongoing COVID-19 pandemic.

Even though we are starting to see some impact from the COVID-19 on housing markets due to a drop in consumer confidence and weaker economic conditions, let’s start with the position at the beginning of the month.

The following chart shows how a number of states started the month at their market peak in property prices.

Sydney property values, for example, have made up much of the ground they lost in 2017-2019, and were on track to reach new peaks had COVID-19 not affected the market.

What’s ahead now that COVID-19 is crippling the markets?

It has been three weeks since the government shut down non-essential services, placed a temporary ban on auctions and open inspections, and essentially halted the economy in response to COVID-19.

CoreLogic’s hedonic house price index had already been showing a loss of momentum in housing value growth rates since mid-March.

Data through to mid-April has seen a continuation in this trend, with the combined capital city measure slipping into negative territory week-on-week for the first time since early-August last year.

Sydney

Prior to COVID-19, the Sydney property market was on the move, having recorded its quickest turnaround in decades.

Since bottoming out after the election in May, Sydney dwelling values have recovered by 13%.

Sydney dwelling values increased 1.1% over the month of March (3.9% over the last quarter).

The recovery was most concentrated across the premium end of the housing market, where values were previously falling more rapidly.

At the other end of the market, investors and homebuyers had already abandoned the off-the-plan apartment sector for many reasons, including concerns about construction standards.

And many of those who purchased off-the-plan a few years ago are now going to have trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.

While A-grade homes and investment-grade properties are likely to fall a little (5-10%) moving forward, this is a great time for cashed-up investors and homebuyers planning to upgrade to buy a property considerably cheaper than they would have had to pay a few months ago, and for considerably less than they will have to pay this time next year.

B-grade (secondary) dwellings may fall in value by 10-15% and C-grade properties are likely not to sell at all.

Melbourne

Before COVID-19 hit our markets, Melbourne property prices were surging, with dwelling values up 12%.

House values were rising faster than apartment values across Melbourne, but the Melbourne property market is very fragmented, and values of more expensive properties were rising considerably more than affordable houses.

But the pace of capital gains across the Melbourne market had been slowing since October last year when the monthly gain peaked at 2.3%.

Slowing conditions were most evident across the premium end of the Melbourne market where the quarterly growth rate has more than halved, down from 8.1% late last year to 3.0% over the March quarter this year.

And it’s likely price growth will stall for a while now.

Like in Sydney, A-grade homes and investment-grade properties in Melbourne are likely to fall a little (5- 10%) moving forward.

B-grade (secondary) dwellings may fall in value by 10-15% and C-grade properties are likely not to sell at all.

Strategic investors with a long-term view and homebuyers looking to upgrade, however, are still in the market.

It’s likely they see the long-term fundamentals as Melbourne rates as one of the 10 fastest-growing large cities in the developed world.

Melbourne’s population was forecast to increase by about 10% in the next four years.

Clearly this will slow down now, with restricted borders protecting Australia, but once we ‘cross the bridge’ Melbourne will remain one of the most liveable cities in the world.

Brisbane

Understandably, the coronavirus crisis is creating uncertainty for those interested in the Brisbane property market.

Looking back over the last few years, Brisbane’s property downturn in 2018-9 was quite shallow compared to the big two capital cities, and following its recent upturn, property values have reached a new peak.

However, Brisbane property prices are still about 55% of Sydney’s while household incomes are only about 12% lower, underpinning the value of Brisbane real estate.

But what’s going to happen to the Brisbane housing market moving forward?

In general, Queensland is highly exposed to the Chinese economy, in particular tourism, education and foreign property purchases.

This means the Queensland property markets are likely to suffer.

On the flip side, once travel bans are lifted, the Queensland economy and property market should benefit from more local travel by Australians as it is likely that overseas travel will still be restricted.

Not all Brisbane property will be impacted equally, because there is not one Queensland property market.

Regional Queensland is likely to suffer more while the Brisbane real estate market is underpinned by multiple pillars, and therefore likely to suffer less than areas like the Gold Coast and Sunshine Coast or regional Queensland.

But even Brisbane does not have ‘one’ property market.

Based on the predicted pace of the post-recession recovery, I would expect the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the global financial crisis.

Just to make things clear, I have confidence in the long-term future of the Sunshine State capital.

Brisbane is one of the world’s great cities.

Liveability, affordability, scale and future economic prospects all suggest that Brisbane is a market where you can confidently buy.

However, while some locations in Brisbane have strong growth potential, and the right properties in these locations will make great long term investments, certain submarkets should be avoided.

In the long term, Brisbane’s economy is being underpinned by major projects such as Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick-off for a few more years.

Adelaide

Adelaide dwelling values are currently at a record high, having increased by 0.9% over the year.

Values had been consistently rising since October last year, with the pace of growth generally higher at the more affordable end of the market.

The lower quartile of the market has recorded a rise of 2.3% over the past twelve months, while the upper quartile is down by 0.6%.

However, Adelaide will not be immune to the coronavirus-led recession, particularly as it does not have multiple pillars supporting its economy.

Perth

It looked like the Perth market was finally starting to pick up.

Yet despite renewed growth, the median house value across Perth remains the lowest of any capital city.

Housing values were slowly emerging from a slump that lasted five-and-a-half years, but coronavirus will put an end to that.

Growth had been a little stronger across the premium sector of Perth’s housing market, with upper quartile hove values rising by 1% over the March quarter, compared to a rise of 0.8% across the lower quartile of the market.

The local rental market continues to show a stronger than average performance, with weekly rents rising by 2% over the past year, and rental yields also holding above average at 4.3%.

Hobart

Hobart was the darling of speculative property investors and the best performing property market in 2017-8, and while dwelling values reached a record high in February 2020, its boom is now over, and values have fallen slightly.

It’s likely the Hobart market will continue to lose its momentum over the year, as its local economy is very dependent on tourism, which is a sector of the economy that will suffer more than most.

Darwin

The Darwin property market peaked in August 2010 and is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.

Finally, Darwin property values started to increase with a 2% rise in March, but the upward trend is unlikely to continue now.

Currently, values are 31.4% below their historic peak and it is unlikely we’ll see these types of house prices again in the next decade.

The small size of the Darwin market makes it more susceptible to local events, and Darwin typically has a higher and more variable vacancy rate, a product of a large transient working population.

Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.

Canberra

Canberra’s property market has been a ‘quiet achiever’, with dwelling values reaching a new peak after growing 4.7% over the last year.

Considering a large percentage of Canberra’s population is employed by the government or industries supporting the public sector, Canberra’s property market is less likely to be affected by the upcoming recession than our other capital cities.

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