Are the fundamentals aligning for the Perth property market?
The Perth property market is on a roll with its tenth consecutive month of growth in May, seeing median dwelling prices reach $521,688.
The fundamentals look to be aligning for the Perth property market as prices continue to rise towards the previous 2014 median dwelling peak of $525,000 [1].
This is a remarkable recovery for the Western Australian capital city, where prices bottomed out less than 12 months ago. CoreLogic Australia index results revealed at the end of July 31, 2020, that median dwelling prices reached a low $439,092 in face of the COVID-19 pandemic [2].
Momentum has shifted for the Perth property market where dwelling prices have exceeded 1% growth a month for more than 5 consecutive months this year [3].
This price growth has been on the back of historic low-interest rates, ongoing additional government stimulus for potential home purchasers, a recovering economy and growing positive sentiment as property prices continue to rise and increase equity.
Can Perth continue to thrive into 2022 and onwards?
The demand for property has been on the rise for Perth residents based on the last 12 month of sustained growth, expressing a potential recovery for the market.
One key fundamental that also continues to improve, is the inverse relationship with demand, seeing the supply of property within the capital city as well as the rest of the state decrease in the residential sector.
Vacancy rates have continued to improve for many years now, seeing vacancy rates drop from a peak of 5.5% in December of 2016 to a very low 0.9% in April of 2021 [4].
Another major influence for property prices to potentially increase in Perth and other markets within Western Australia over the coming years is the number of property completions coming into the market.
Key economist group BIS Oxford economics expects a potential undersupply of dwellings to the end of 2024, as revealed in the below graph.
One fundamental that needs to align for Perth to see continued increasing prices not only over the short term but also in the medium to long term, is having a healthy balance of affordability within the market.
One way to measure affordability is by measuring home loan affordability and the percentage of average disposable income being spent on monthly mortgage payments.
BIS Oxford Economics revealed in their ‘Residential Property Prospects 2021-2024’ report as of 31 March 2021, the current state of Perth’s affordability using the above formula.
BIS Oxford Economics noted that by the end of 2020, Perth residents were spending only 16% of their average disposable income on monthly mortgage payments, which is considered a healthy balance for the residential property market.
The potential forecast would see a slight increase of the percentage to only 18.4% at the end of 2024, which is still considered a healthy range.
Key Takeaways.
The potential for property prices to continue increasing in the years to come for the Perth market is looking positive as the fundamentals continue to align.
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Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your circumstance.
References
[4] SQM Research
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