National market update – what’s happening in our capital city property markets?

Now that we’re well into 2013, home buyers and investors who were looking to the property markets for direction are seeing positive signs and responding with renewed interest.

This is reflected in more people attending open homes, more offers being made to buy properties, higher auction clearance rates and property values slowly rising.

The biggest change I’ve seen so far this year is the rise in consumer confidence and history suggests this is good for property.

So today I’d like to whip around Australia and see how our property markets are performing.

But before I do, let’s first look at the latest housing stats.

RP Data reported their February house price index and the findings were encouraging.

Interestingly I’ve already seen the word ‘boom’ used in the media. It would be misleading to say our housing markets are in full-scale recovery and any deterioration in economic conditions could easily slow things down again.

However the latest stats will once again disappoint the doomsayers who frequent the property forums and for the last five years have been predicting an apocalypse.

What the stats show

The five-city dwelling price index recorded a 0.26% rise over the month. This is the second consecutive monthly increase following January’s 1.11% increase in our five big capital cities.

What the figures don’t show is how fragmented our markets are, with different states, price points and types of properties behaving differently.

Only half our capitals showed price increases and this time around Melbourne was the outstanding performer with its third monthly increase in a row.

Source – RP Data

The tide is turning

According to RP Data’s Tim Lawless, most housing markets bottomed out around May last year and since that time the combined capital cities index has recorded a 3.3% improvement in values.

Apartments outperform houses

Units outperformed houses in Australia’s major capital cities. Over the past year apartment values rose 2.3% compared with a 1.2% gain in house values.

Let’s now look at some of our major property markets in a little more detail:

Sydney

Median house price: $600,000 with 2.2% increase in last 12 months
Median unit price: $400,000 with 4.7% increase in last 12 months
Vacancy Rate: 1.6%

Sydney performed well over the last year, but the top end of the market is still suffering from an oversupply of property relative to the reduced demand. However, affordable gentrified suburbs within close proximity to the city, transport, amenities and infrastructure are performing well.

In particular, investors and owner-occupiers are snapping up well-located apartments in the inner western suburbs and Sydney’s eastern suburbs at hotly contested auctions, according to George Raptis, director of Metropole Property Strategists in Sydney.

“I’d like some of the property doomsayers to come to one of these auctions and see how many genuine bidders are in the market for the small selection of good properties for sale,” says Raptis.

“The market for well-located apartments is likely to remain strong throughout the year. Strong rental demand, a shortage of rental properties, tightening vacancies and rising rents means investors will vie for the same apartments as owner-occupiers, underpinning prices.”

Melbourne

Median house price: $520,000 with 0.6% decrease in last 12 months
Median unit price: $420,000 with 1.4% decrease in last 12 months
Vacancy Rate: 3%

Melbourne has been the surprise performer over the last three months but different segments of the Melbourne housing market are at different stages of the property cycle.

While there is still an oversupply of property at the top end, there is more competition for properties in the middle range of the market, where there is a shortage of well-located properties. This has been evident in strong auction clearance rates this year.

But there are some segments of the Melbourne property market to avoid.

According to Keith Franklin, of Metropole Property Strategists in Melbourne, “Builders and developers have got ahead of themselves, and there is an oversupply of newly built house-and-land packages in Melbourne’s outer western suburbs.

“Currently there is a flood of new properties, but buyers are showing a preference for two to three year old homes which can be bought considerably cheaper than new stock.

“There is also an oversupply of inner-city CBD apartments and the rental vacancy rate in Melbourne’s CBD is 4.4%.

“The problem is there are many more apartments coming on stream in the next few years at a time when there is less demand from the tenant demographic that rents in the CBD,” adds Franklin.

“This will put downward pressure on prices and rentals. I expect there will be an oversupply of inner-CBD and near-CBD apartments in Melbourne for a few years, causing prices to fall slightly.

“Currently there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations” he says.

Brisbane

Median house price: $453,000 with 1.3% increase in last 12 months
Median unit price: $350,000 with -2.4% decrease in last 12 months
Vacancy Rate: 1.9%

House prices in Brisbane are still around 9% below their peak, but there are now signs of improvement in this market.

“Last year we saw Brisbane buyers lacking the necessary confidence to re-enter the market, instead sitting on the sidelines waiting for signs that real estate has bottomed before buying a property, but things are very different this year,” said Liz Wilcox, director of Metropole Property Strategists in Brisbane.

“More potential buyers are coming to open homes, with many putting in offers within days of properties being put on the market. There has definitely been an increase in confidence among Brisbane-based property buyers.”

“Like other parts of Australia, the prestige end of the Brisbane housing market is suffering, but well located, more affordable homes within 5-10 km of the CBD are likely to perform well this year” said Wilcox.

Currently there are a large number of off-the-plan apartments available in the Brisbane CBD and surrounding suburbs. Many of these remain unsold, and this oversupply of properties will put downward pressure on prices and rentals in these suburbs.

Perth

Median house price: $480,000 with 3.9% increase in last 12 months
Median unit price: $410,000 with 1.5% decrease in last 12 months
Vacancy Rate: 0.8%

In the three years leading up to the 2008 peak in house prices, WA house prices increased 20% per annum on average, compared to a national average of 6% per annum. Since then, investors and home owners deserted the Perth residential property market, until the middle of last year when the market turned the corner.

“Currently prices are around 4% below their March 2008 peak and with rising rentals (up around 15% in the last year) and a shortage of good stock on the market at a time of strong population growth and first home owners and investors returning to the market, prices in Perth are once again moving up,” says Damian Collins, director of Momentum Wealth in Perth.

Adelaide

Median house price: $395,000 with -1.5% decrease in last 12 months
Median unit price: $320,000 with 2.8% increase in last 12 months
Vacancy Rate: 1.4%

The Adelaide property market has been flat for some time now and prices are likely to correct a little more before the market bottoms.

Darwin

Median house price: $587,000 with 6.3% increase in last 12 months
Median unit price: $410,000 with 4.2% increase in last 12 months
Vacancy Rate: 1.4%

The Darwin property market has been the strongest performer over the last year, fuelled by strong investor sentiment at a time of a shortage of properties and rising rents.

What next?

While our property markets are likely to remain soft this year, they should keep consolidating.

We’ve entering the stabilisation phase of the property cycle where buyers are returning, slowly taking up available stock and gently pushing up prices in the middle price range.

However, these purchasers are being very selective. Well-located, well-priced properties are selling, but properties in secondary locations or those in areas of oversupply are languishing.

The prestige end of the market, which has been hit hard over the last five years, will slowly improve as our economy and business sentiment picks up.

Rising consumer confidence, low interest rates, a stable economy, rising rents and more good news in the media are likely to augur well for our property markets this year.

Warning: There are plenty of speed bumps ahead

Home buyers and investors will have to do careful due diligence – they won’t have booming property prices to cover up mistakes.

This means they will need to buy the right type of property. One that has a level of scarcity, meaning it will be in continuous strong demand by owner occupiers (to keep pushing up its value) and tenants (to help subsidise your mortgage); and one in the right location (that has outperformed the long-term averages), at the right time in the property cycle (that would be now in many states) and for the right price.

Then hold it as a long-term investment and reap the rewards.

Data Sources: RPData; SQM Research

Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog. Subscribe today and you’ll receive a free video training: The Golden Rules of Property Investment.