The Perth property market has stagnated in the second half of 2014 as economists warn that we are heading for a rough ride in 2015.

Recent figures show that Australia’s economic growth rate has fallen to 0.3% and with declining oil, gas and gold prices over the year both state and federal government revenue is taking a hit. The federal government’s mid-term budget figures have put the average price of iron ore at $US60/T which could result in a revenue write-down of more than $9billion in two years.

The RBA has been warning that Australia is headed for tough economic times for the best part of 2014. In his most recent interview, RBA Governor Glenn Stevens has said that keeping interest rates at a record low 2.5% for more than 18 months has provided a level of stability to the market. However, he said he would like to see the Australian dollar get down to around US75 cents, which will have an impact on Australian’s spending on foreign goods.

For WA in particular, poor performance in the mining industry is having a direct impact on employment figures. November’s unemployment rate was up to 5.2% according to the ABS and that figure has been trending upward since the beginning of 2014. Total underemployment is at 8.6%.
While these figures are still significantly below the national figures (6.3% unemployment) it is not a good sign for WA as big business continues to feel the pressure of a struggling economy.

Given that unstable employment conditions is one of the biggest barriers to home ownership, these figures are having a clear impact on the WA property market.

According to RP Data, Perth only experienced 1.4% growth in home values over the last 12 months. This is well behind Sydney (13.2%), Melbourne (8.3%), Brisbane (6%) and Adelaide (2.8%). This is in stark contrast to the growth that Perth has experienced over the past decade, continually being touted as one of the fastest growing property markets in Australia (second only to Darwin) with 6.9% price growth in the last ten years.

The latest data from the ABS Residential Property Price Index for the September 2014 quarter represented a 0.1% decrease in Perth’s median house price. According to the ABS, Perth was the only housing market to record a drop in prices for that quarter. The year-on-year numbers are somewhat healthier, recording a 3.7% increase in prices for Perth. This ranks Perth at number six in terms of house price growth across the country behind Melbourne, Sydney, Brisbane, Adelaide and Hobart.

The third organisation to release somewhat sobering figures recently is REIWA. The peak real estate organisation says that sales activity is down as their September quarter data shows a less than 1% increase in the median house price to $548,000. To add fuel to the fire with regard to talk of a downturn, sales listings exceeded 13,000 in the first week of December and are predicted to remain high throughout the spring and summer buying periods.

REIWA also notes that rental prices are down and vacancy rates remain at 4%. The median house rent is down to $450 in the September 14 quarter. It was $460 last quarter and $470 in September 2013. It is taking landlords an average 33 days to find a tenant for rental properties in Perth.

While these figures paint a dismal picture for property price growth as we head into 2015, one area that may benefit from the downturn is housing affordability. Affordability has marginally improved in Perth since the 2011 boom due to slowing property price growth, low interest rates and relatively strong income. The gap between income and median house price has closed slightly according to data from ABS and State Revenue. For those remaining in steady employment during 2015 this is good news as prices are likely to adjust downwards.

One sector of the market that hasn’t been deterred by a rocky economic outlook is investors. In particular foreign investor activity is growing at a significant rate across the country, especially in Sydney and Melbourne. According to ABS housing finance figures, lending to investors in Australia hit a record high of 41.4% in September 2014.

It is this continued high level of activity from investors that has caused significant concern from a number of economic commentators and institutions such as the RBA. Their primary concern is that investor activity has increased due to low interest rates and loose bank lending practices and has caused artificially inflated house prices on the east coast. Talk of the introduction of macro prudential tools has quietened in the last few weeks, however APRA is now closely monitoring mortgage lending, particularly to investors and higher risk lending.

There are concerns that tighter controls on lending could lead to further adverse impacts on the property market in WA. The next six months will be telling for the Perth market as we monitor the continued effect of the economic downturn and brace for potential price reductions and tougher selling conditions throughout 2015.