Perth charges into bear market

Australian Financial Review – Julie-anne Sprague, 4/11/2015

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Perth property prices have slumped more than 6 per cent this year and experts say any recovery is at least a year away.

According to the Real Estate Institute of Western Australia, house prices in Perth plunged 4.2 per cent in Septmber, the biggest quarterly price drop since REIWA began tracking the market 21 years ago.

REIWA puts Perth’s median house price at $522,133, the lowest since September 2013.

REIWA president Hayden Groves said one of the reasons behind the dramatic fall in the September quarter was fewer sales at higher price points.

Sales volumes are already low and are mainly in the lower part of the market. “The mining types on good money who were buying higher end properties are saying they need to go work elsewhere so are either selling or leasing their properties,” said Mr Groves. “The top end has been really hit.”

Statistics from CoreLogic RP Data puts Perth’s median house price at $500,000, or a fall of 6.5 per cent since the start of the year. REIWA data shows prices are down 5.4 per cent in the past 12 months. Properties listed for sale hoave surged beyond 16,000, or 4000 more than the average.

Following the global financial crisis about 18,000 hit the market. However, a relatively quick recovery in comodity prices eased the pain for investors as the economy, and the economy, and the houseing market (improved).

Most experts expect iron ore prices, the biggest contributor to Western Australia’s economy, to remain flat for at least a year. “We will see a recovery going forward because inevitably there will be trade up activity,” Mr Groves said. “Any recovery will be slow and moderate,” he said. “Prices in real terms won’t rise until excess supply washes through. That could take 12 to 18 months.”

Property valuer Gavin Hegney said the mining downturn was only one factor behind Perth’s slumping prices.

He said a bigger factor was the market was building more homes than needed. “There are 32,000 new dwellings hitting the market, we probably meed more like 15,000 to 20,000. So we have a surplus.”

Mr Hegney said prices could fall another 1 to 2 per cent.

“I think we are about nine months in to an 18-month downturn,” Mr Hegney said. “If you look at the numbers it’s scary. But population growth is still positive. My tip is that by the next Melbourne Cup the Perth market will be in better shape. People are waiting and they’re asking me when the bottom of the market is. People shouldn’t be alarmed. The only mistake you can make is gearing beyond your means.”

Qwest Paterson chairman Warwick Hemsley said the Reserve Bank’s decision to keep interest rates on hold was disappointing for the Perth houseing market.

“Obviously the RBA can’t make it’s decision based on the condition of one state’s property market, however in the last month or so Sydney, and to some extent Melbourne, have also come off the boil,” Mr Hemsley said.

“The level of interest in the market from investors as well as owner-occupier buyers has declined in recent months due to tighter lending conditions and higher variable interest rates,” he said.

Airey Real Estate managing director David Airey said interest rates had been low for so long that cuts had less of an impact.

“We have all go used to interest rates being low that they don’t make a difference any more,” Mr Airey said.

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