- Cheaper houses mean smaller mortgage increases as interest rates rise
- Construction cost rises a result of multiple contingencies
- Pre-Covid, it took 50 days to sell a house. The median selling time is now 15
Verily, it was said at the Urban Development Institute of Australia WA’s (UDIA WA) Perth Property Prophesy luncheon**, “West is best”.
Speaking were REIWA’s Cath Hart, Urbis’ David Cresp, and Colin Keane, with the afternoon overall optimistic about the WA market and the opportunities that lay before the real estate industry in WA.
Interest rates in WA rose
As cash rates rose, the average mortgage followed suit. Hart recounted Sydney’s median house price of $1.6 million and the east coast exsanguination of a $640 increase in mortgages per month. Compared to Western Australia’s $560,000 median and $370 per month average increase in mortgages, it was one goal for the West.
Taking a step back, Mr Cresp noted a broader picture of positivity with the Reserve Bank of Australia not expected to put rates any higher than around 3% with mortgages therefore around 5% to 6%. He also said a December rate rise is unlikely and that the rises will probably have done enough to start damping inflation by that point.
Ms Hart noted that during the Global Financial Crisis (GFC), rates bottomed out at around 3%
Interest rates and major events timeline
Hart quoted CoreLogic data for August 2022, with the Perth seeing a 0.1% rise in dwelling values.
Rolling 28-day change in dwelling values, largest capitals
Since the luncheon, the Reserve Bank of Australia has brought the cash rate to 2.35% and inflation has risen to 6.8%. Some believe the latest rate rise will see repayments rise by more than $3,000 per year for a $400,000 home loan.
Also since the event, a national survey was conducted by ANZ/Property Council, with the results showing confidence in West Australian housing to be one of the strongest in the country and the only state to see house capital growth expectations above zero.
Current constraints
Ms Hart said a balanced market can expect to have between 12,000 to 13,000 listings. Currently, there are only 8,600. Also regarding a balanced market, houses can expect to sell in about 30 to 40 days. Pre-Covid in 2019, it took 50 days to sell, with the median selling time now 15.
Median times for house sales and leasing
The rental market saw similar drops in time. The median rental time in 2017 was 41 days, with the latest figures showing 16 days. Hart noted a balanced rental market should expect around a 3% vacancy rate, however much of WA has seen vacancy rates around 1%, with some areas seeing considerably lower rates.
Construction costs
The challenges of building at present are well known, Mr Cresp noted a difference between what the industry has been feeling and what some data showed.
Mr Cresp noted the feedback he had been receiving from developers is that costs had risen some 30% to 40% over the past 12 to 18 months. Quoting Rawlinsons data, however, construction costs have risen about 7% over the last 12 months.
Exploring this, Mr Cresp said that what people were experiencing was in fact contingency on contingency on contingency and that was adding to the total costs while actual costs of materials and labour were rising at a lower rate, likely in line with the Rawlinsons index.
Migration hopes
Prior to Covid, Mr Keane said that there was already a very low number of golden tickets being issued to new Australian residents. Over Covid, the Federal government increased it from 40,000 to 160,000. Keane’s forecast is it will reach 195,000, and Perth represents roughly a tenth of the national pie.
Since the luncheon, the migration cap was officially lifted to 195,000.
Ms Hart also recalled WA saw a record number of interstate arrivals throughout Covid years 2020 and 2021.
~~
*Disclosure: The Property Tribune attended the luncheon as a guest of the Urban Development Institute of Australia WA.
**To note: the luncheon was held at the end of August, prior to the September rate rise news.
