Has the Market Peaked?

The media and government have thrown about the phrase ‘housing crisis’ in recent times to highlight the challenges of Australia’s housing market. The overuse of a slogan can reduce
the seriousness of the challenge of housing affordability. Last week, the federal government finally got legislation through the parliament designed to assist first-time buyers purchase their first home (the Help-to-Buy scheme), along with tax
rule changes (the Build-to-Rent sector) to encourage big corporate landlords supply more rental stock. Both initiatives will help bring the market back into balance, particularly to the
benefit of renters who have struggled with a shortage of housing supply in recent years.

Further growth is somewhat inevitable

Housing markets have always ebbed and flowed. Affordability has deteriorated in recent years due to a number of factors, most notably the shortage of supply caused by a sudden expansion in migration levels post COVID border closures, soaring construction costs, inflationary pressures and higher interest rates. The challenge for governments is very few property owners support falling house values. The family home is a source of capital that combined (at $10.4 trillion) exceeds the combined value of the ASX, superannuation pool and commercial assets. Policies that impact household wealth damage the economy given household spending contributes around half to Australia’s economic activity. And with economic growth wobbling along at 0.8 percent annually, if household balance sheets fall, so does the economy – a danger to sitting governments.

This week, data house Core Logic reported Australian house prices are on the decline, especially in Melbourne and Sydney. Perth continues to rise, up 1.1 percent for November but now growing at a slower pace as listing supply rises and affordability bites. So, has the market peaked? In the major capitals – definitely. Melbourne’s dwelling value is down 2.3 percent year-to-date falling 0.4 percent last month and whilst Sydney’s annual growth remains positive, it pulled
back 0.2 percent in November and is down for the quarter. Locally, Perth’s dwelling values continue to rise, up 21 percent year-to-date. Our market is not at its peak with a further 10 to 15 percent gain likely for 2025.

Further growth is somewhat inevitable given continuing population growth, ongoing supply shortages thanks to construction costs, a likely interest rate cut next year and higher wages. Our median dwelling value last month at $808,809 still lags Adelaide’s $813,716 and Brisbane’s $886,540. Buyers will have more choice and the pace of growth will ease but we are still catching up on the lost decade of 2010-2020 where Perth’s property values stood still. This time next year, a median dwelling value of $895,000 would not surprise.