A SUMMARY OF THE INSTITUTE’S MONTHLY UPDATE ON THE WA MARKET WHICH WAS PUBLISHED THIS WEEK
UDIA Chief Economist, Tim Connoley, this week published his latest report on the WA market. In essence he said that the low rate environment has encouraged the two most sensitive market segments: investors and First Home Buyers (FHBs). Investor loan levels in WA reached a low point in mid-2011 but have since then increased 17 percent. FHOG applications remained at high levels, reaching their highest level last month outside the FHOG Boost stimulus period.
FHBs and investors are not necessarily buying new properties (75 per cent of FHBs bought established dwellings in 2012 in WA), but they are freeing up existing owners to buy new homes, many of which may have been sitting on their hands since the middle of last decade.
Existing home owners have become slightly more active in the market since mid 2012 (upgrader loan levels are up 13.6 percent Year-on-Year), taking advantage of the number of listings in Perth falling from 14,000 to 8,700 listings over the past year, well below the 2010 high of 18,000 listings.
Meanwhile, settled sales figures show that 30.4 per cent more residential properties (exc. vacant land) changed hands in 2012 compared to 2011, with all regions except the Pilbara experiencing higher turnover.
High levels of immigration in excess of 1,000 people per week in WA put significant pressure on the Perth rental market, with median rents rising 12 per cent p.a. and the vacancy rate fluctuating between 1.8-1.9 percent throughout most of the last 18 months. Rental pressure in Perth has, however, eased somewhat.
An increase in properties for rent in Perth over the March quarter lifted the vacancy rate to 2.4 percent. And online listings data shows that the Perth rental market continued to ease in April with a vacancy rate of 3 percent projected for later this year.
Low interest rates are continuing to encourage activity in a sector which is typically more sensitive to interest rate changes, especially in WA. The ability of low interest rates to encourage dwelling construction has been clear over the last five residential construction cycles in WA but construction usually lags by around nine months from the first rate cut. This time is not different. Construction levels bottomed out in May 2012, seven months after the initial 2011 Melbourne Cup rate cut and have since rebounded 21 per cent.
As we all know, the market property plays out against a complex economic backdrop which influences purchasing patterns. Multi-unit construction has led the rebound, up 51 per cent year on year compared to houses at 11.4 percent. Apartments are strengthening due to a combination of growing market demand and apartment construction being subdued longer than the housing market.
Given dwelling construction is strengthened somewhat faster than anticipated (there were 11,239 dwelling starts in first half of 12/13), the Housing Industry Forecasting Group has lifted its 12/13 forecasts for dwelling commencements from 21,000 to 22,500. The Group predicts construction will stay at these levels in 13/14.
There is more upside than downside potential with this prediction as low rates are expected to continue in the near term. Construction cycles in Western Australia typically peak at 24-28,000 dwellings per annum but with over 80,000 new residents last year we are still under-building.
Land development and dwelling construction levels are expected to increase 25-30 per cent in 12/13 and continue next financial year. This will, of course, depend on the ability of the industry to ratchet up their output once more. Industry and government have been caught before in underestimating the speed of market recovery, but that is one of the consequences of a market based system. The benefit is that competition usually leads to better outcomes for the consumer.
Sales volumes in Perth have increased throughout the last eighteen months, with volumes over the last year just 2.2 percent below the peak levels recorded in the year to March 2006. After experiencing deeper troughs than the metropolitan land market, the Peel and South West regions experienced the largest increase in sales over the March quarter. Sales volumes in Perth have dropped off in April/May from the highs of the previous month but remain well above 2012 levels. This is a seasonal adjustment (it’s cold outside!).
For the sixth consecutive quarter land developers have increased the number of lots brought onto the market, with an average of over 200 lots each week in Perth during the March quarter. Many of these land releases are being snapped up quickly, with the volume of lots on the market at the end of March declining 8.8 percent over the quarter and 41 percent over the year. The majority of lots in Perth are now being pre-sold.