Predictions of how property markets are likely to behave into the future are always risky, especially if people rely on them. You’d want to be pretty certain the predictions will play out in the manner forecast or risk the livelihoods of those that make real estate decisions predicated on such predictions. Experienced property commentators can get it wrong when it comes to assessing likely market conditions across the short term. Take, for example, CBA’s economists back in early 2020, just as COVID-19 took hold. Their predictions of an “up to 20% fall in home values” proved to be about 40% out, as property prices swung the other way, rising 20% in the ensuing 12 months.
As we ticked into the new financial year, broader economic conditions remain uncertain. Wars, ‘Trumpism’, slack productivity, increasing wages, cost of living pressures and the like make for challenging conditions when assessing the next
twelve-month property cycle. My prediction is for sustained price growth during this period across the metropolitan area of Perth at around 6%. Here’s why.
Interest rate cuts. The RBA’s decision to lower the official cash rate from 4.35% to 3.85% has bolstered borrowing capacity and renewed buyer enthusiasm. This shift in monetary policy has already produced results, with Perth leading the nation last month posting a 0.8% monthly increase in property values. With further cuts anticipated, lower mortgage costs are likely to keep demand high, encouraging more buyers and investors into the market, especially as wages rise. Come January 1st, government support for first home buyers via the First Home Guarantee Scheme whereby buyers can acquire a first home with a 5% deposit with Lenders’ Mortgage Insurance underwritten by the federal government will increase with the removal of the income caps and increase in maximum buy price to $850,000. This will add fuel to the demand side for median house price buyers.
Supply remains a problem. The number of homes listed for sale in Perth is stuck around 4,500 down by around 40% compared to the five-year average. This lack of stock naturally puts upward pressure on prices through increased demand and buyer competition. Meanwhile, construction costs and delays continue to hamper efforts to add more supply as builder liquidations, labour shortages and material costs continue to impact. The government is adding rental supply via significant acquisition and construction of social housing in recent times, but this can hamper private sector supply as builders flock to lucrative government construction contracts.
Our rising population is a major driver of demand. The state is forecast to grow from 2.9 million in 2025 to over 3.3 million by the end of the decade. This growth is being fuelled by strong levels of interstate and overseas migration, with many newcomers drawn to Perth’s relative affordability, strong economy and employment prospects. Our ‘lost decade’ (2010-2020) of poor property market performance has caught us short in adding enough supply during these years to cater for the influx of new arrivals since 2020. Last year alone we added 90,000 new residents equivalent to the population of Greater Bunbury.
Economic performance is another core driver. Leading the nation, Perth’s economy, supported by a robust resources sector and expanding infrastructure, is offering both stability and opportunity. Major developments in mining, renewable energy, and public transport, particularly the METRONET rail projects, are creating jobs and improving the liveability of outer suburbs. These improvements are enhancing the appeal of previously overlooked areas, helping to redistribute demand more evenly across the metro area.
Despite recent price gains, Perth remains one of the most affordable capital cities in Australia. This affordability continues to attract first-home buyers and investors, particularly those priced out of Sydney or Melbourne. With rental yields averaging 6.5% and vacancy rates among the lowest in the country, the city presents a compelling proposition for investors seeking steady returns.
The key to sustaining this growth will be balancing demand with adequate housing supply and closely watching economic conditions. For buyers, sellers and investors, understanding these underlying dynamics will be critical to making informed decisions in the year ahead.
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