THE WESTERN AUSTRALIAN PROPERTY MARKET IS ON THE MOVE, BUT AFTER SEVERAL YEARS OF SUBDUED DEMAND WHAT WILL THIS CYCLE LOOK LIKE?
Last week UDIA Economist Tim Connoley suggested that maybe we should add property cycles to Benjamin Franklin’s popular adage about death and taxes.
Or maybe we should look to Isaac Newton who said “what goes up must come down,” or in this case, what is down will go up.
Whichever wise person we quote, one thing is for certain, the Western Australian property market is once more on the move.
We are nearly two years into Perth’s eighth property circle in the last thirty five years although it could be argued that this cycle has been trying to get going since the market spluttered and died in 2007 only to be partially revived in 2009/10 through the first home buyer grant boost.
But what will this cycle look like? Will it mimic the 1980’s short booms and strong rises in housing demand? Will the cycle be prolonged like the 2001-2006 period which experienced the highest price growth on record? Or maybe something different?
A quick snapshot of previous cycles shows the time from trough to peak can vary significantly, as can the rate of growth (as measured by increases in housing loans):
- 1982-1985: Trough to peak 26 months; housing loans increase 2.8 percent per month
- 1986-1988: 29 months; 3.1 percent/mth
- 1991-1994: 42 months; 2.8 percent/mth
- 1996-2000: 40 months; 0.6 percent/mth
- 2001-2006: 65 months; 0.8 percent/mth
- 2011-current: 21 months; 1.1 percent/mth
So far, the cyclical upswing does not look like mimicking the 1980s short booms where inflation was considerably higher and real house price rises were considerably less (indeed, the policy environment was also more erratic with significant tax and financial market changes).
Whilst the dynamics look similar to the last cycle this time supply levels have reached low levels much earlier. Developers are already reporting low stocks of lots available for sale and analysis of the December quarter of the Urban Development Index showed that there was only around a two month supply buffer at current rates of demand. For the existing housing market, the number of listings in Perth has fallen dramatically from 14,000 to 8,400 over the past year which is well below the 2010 high of 18,000 listings.
We are starting to see capital growth which will encourage activity in the investor market. The big question now is can we keep up the supply to the market?