Perth property expected to continue roller-coaster ride
Turbulent times are likely for a city prone to fluctuation, writes Peta Tomlinson
It can be the best of times or the worst of times for the Perth property market. Heavily linked to the resources sector, it is a market prone to fluctuations - still in growth mode overall, but not to the highs some had banked on, and more of the lows than many expected.
Data from the Real Estate Institute of Western Australia (REIWA) shows that from 2001 to 2005, Perth house prices doubled on the back of the mining boom. By 2006, the west had Australia's second-most expensive capital, and there was speculation Perth was on track to overtake Sydney.
The first cracks began to appear in 2008, as shockwaves from the global financial crisis made their way across the Indian Ocean. Growth returned to the market in 2010, only to fall again for the next two years.
Then came robust growth last year. In a year during which Australian house prices rose almost 10 per cent, Perth was the second-best performing market, gaining 9.9 per cent to take house prices to a record high, according to RP Data.
Many predicted that momentum would continue, and 2014 would again be Perth's year. Australian Property Monitors' senior economist Andrew Wilson tipped annual growth of between 6 and 8 per cent for this year. Fitch Ratings forecast Perth's growth would "become more positive" and despite a slower rate of growth than 2013, "we are still optimistic to have a better and competitive market". So, how is the year shaping up?
The recently released RP Data-Rismark Home Value Index found that Perth was the only Australian capital city not to gain value over the first three months. REIWA, having trumpeted the historic price breakthrough the previous quarter, conceded the market was "choppy". The March quarter was down about 6 per cent compared to the first quarter of 2013, and listings had climbed to the highest level in 18 months, says REIWA president David Airey. Eyes have since drifted from Perth towards the Queensland capital, where Brisbane has usurped Perth as "the market to watch" this year.
Wilson sees the recent flattening in Perth as more of a "blip" than a worrying trend. He notes that as economies cooled in the eastern states last year, jobseekers flooded to the west seeking employment in the mining sector.
At one stage, there were reports that up to 1,200 people were moving into Perth each week, pushing the local jobless rate to 6.3 per cent in February - "always the first sign" of a market slowdown, Wilson says.
However, that proved to be temporary - Australian Bureau of Statistics data showed a "significant improvement" in the jobless rate in March. "I think this has been an underlying issue in terms of the housing market," Wilson says. "Now that the short-term imbalance in terms of unemployment growth is starting to moderate, I think we will see Perth starting to grow again."
His rationale is the robust local economy, and a reasonably balanced housing market in terms of type of buyers. Perth has the highest level of first-time homebuyers, and the quiet start to the year may be linked to affordability barriers, Wilson says. "We've seen similar effect in all capital cities, where housing markets are recording a falling back in growth rates over the March quarter, particularly the strong markets of Sydney and Melbourne, as well as Perth."
His verdict: "The underlying drivers are still strong in Perth. There is still that shortage of housing, rents are still high, which is an incentive, and the economy remains strong. The encouraging fall in the jobless rate in Western Australia over March suggests that the unemployment blip is starting to moderate and once that rebalances itself, I think we will see prices growth reassert itself in Perth.
"In 2014, we'd expected to see a similar rate of growth as last year [around 9 per cent], but probably the risks are on the downside at the moment, given the quiet start to the year. I'd still suggest that Perth will record prices growth of maybe from 5 to 7 per cent this year."
Angie Zigomanis, senior manager, residential property at economic forecaster BIS Schrapnel, stands by his earlier prediction that Perth would be "ok" in 2014, "but maybe slowing as the year went on".
"At the moment you have construction activity rising, and supply picking up. Our concern is more from an economic and sentiment perspective," he says.
A lot of investment in the mining sector, while still high, has peaked, and is starting to come off now, Zigomanis explained. "For most [mining] projects, the employment takes place in the expansion and construction phase, rather than the completion stage. These projects are starting to wind down towards completion.
"Migration is falling rapidly from interstate and easing from overseas - so a lot of those pressures which were there 12 months ago are starting to be alleviated. A corresponding impact on the economy is probably taking place as well."
Zigomanis' forecast for Perth is "solid at the moment, but slowing as the year goes on". He expects growth "about mid-single digits" for the calendar year. Melbourne - a market which "continues to surprise us" owing to its strength - should likely moderate as the year wears on, and projects come to completion, he says.
"Brisbane will be accelerating - its economy is probably flat, whereas Perth's is probably slowing," Zigomanis says. The Queensland capital "missed the upside that Perth had over the last couple of years, so a deficiency of dwellings is starting to emerge", he adds. "In Brisbane, we think that will translate to an upturn in prices as the year wears on."