2020 Off to Good Start

The bottom of the market has now passed. After more than five years of slackening values and extraordinarily low transactional activity, all indicators demonstrate property values are poised to rise from here.

Here’s the top reasons why prices should rise in 2020 in no particular order:

Firstly, rents are rising in Perth. REIWA’s latest reported vacancy rate for Perth metropolitan area is at 2.5 per cent, below the market parity figure of 3 per cent for the first time in five years, tipping the market out of equilibrium to favour lessors over tenants. Rents have started to rise with competition for detached homes pushing rents beyond the advertised rent.

Secondly, supply has dropped from 16,600 this time last year to around 12,500 listings across Perth’s suburbs. Even if demand remains steady, as supply tightens buyers begin to compete to buy quality homes, pushing up prices. 2019 is likely to return fewer transactions than in 2018 which was the lowest level of sales in 30 years. These low levels of activity simply cannot continue at current levels. Anecdotally, agents are reporting significantly increased levels of new buyers at home opens from early this month.

Thirdly, population growth is returning to more normal levels with fewer people leaving the state than twelve months ago. WA Treasury predicts increases in population growth for this year thanks to increased migration, new mining projects creating more jobs and Perth’s reinstatement as a regional city by the federal government for the purposes of attracting international students.

Fourth, the Prudential Regulator changed its demand for lenders to assess borrower serviceability assuming a 7 per cent interest rate. This was a significant problem for buyers seeking loan approvals when the actual rate for a standard variable home loan is as low as 3.64 per cent. The “assessable rate” is now at 2.5 per cent above the actual rate which will open more lending opportunities to buyers across all market segments.

Fifth, WA’s economy is poised to improve with federal government infrastructure spending commitments boosting jobs, GST revenues rising and iron ore prices continuing to surprise and delight the state government.

Finally, aside from Darwin, Perth is Australia’s most affordable city to buy a home. Perth’s median house price of $479,000 at the end of 2019 is less than half that of Sydney’s. Contrast this with 2005 when Perth’s median was $480,000 and Sydney’s was $485,000. On average, a Sydney-sider commits 42 percent of their income to service their mortgage, whilst in Perth its 27 per cent; enviably more affordable.

Perth is even more affordable than Hobart nowadays and as WA’s economy improves and more jobs are created, eastern states’ folk will once again look west to relocate their families.

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