As figures for the final quarter in 2014 start to emerge from a range for sources, the state of Western Australia’s residential property market is under the microscope. The impact of the economic downturn is now in black and white as we see residential house price growth stagnate, housing sales decrease and housing finance commitments trend downward.

REIWA have released their December 2014 figures which reflect a 1.8% decrease in the median house price to $540,000 and a 1.4% decrease in the median unit price for Perth. These figures are in keeping with Core Logic RP Data’s latest Housing Market Update which recorded Perth’s median house price at $548,000 for January 2015. Core Logic’s data showed that Perth recorded a decrease in housing value of 0.6% for the month and the second lowest rate of annual growth in the country at just 2.6%. This is compared with 9.9% growth in the previous year.

Along with a downward trend in prices, REIWA revealed that sales activity is trending down accordingly, with the average number of selling days up by seven days to 57 and the amount of stock listed on the market up by 39%.

These figures paint a bleak picture of the current Perth residential property market following its peak in early 2013. While Melbourne and Sydney have remained relatively strong, the Perth market is weakening considerably.

The RBA is attempting to provide life support to the economy on a national level through cutting rates to 2.25%. The recent cut has sent the average mortgage rates down to their lowest levels since the late 60s. While cutting rates may provide some level of support to the market and encourage some buyers, it is likely that increasing unemployment, waning consumer confidence and continuing affordability issues will still form barriers to people engaging in the property market.

Many commentators are expecting further rate cuts next month following the recent release of ABS national employment figures. Unemployment is quickly emerging as a major issue in a state that has boasted well below average unemployment for many years. The national unemployment rate hit 6.4% in January and 5.7% in WA. While we still remain below the national average, the mining downturn continues to take its toll. Adding further strain on employment opportunities will be the completion of the $60billion Gorgon project in mid-2015.

Actions such as the cutting of 160 jobs at BP’s Kwinana oil refinery is another blow to employment stability in WA. Government jobs have not been immune to cuts as Water Corporation has earmarked possible large scale job cuts and 1500 public sector jobs have already gone under voluntary redundancy schemes.

The reduction to first home buyer activity is a clear symptom of the weakening market. Latest ABS figures show that the number of first home buyer dwellings financed has been decreasing for three months straight. What is more concerning is the fact that despite the downturn, the loan size for first home buyers continues to increase, with the average loan to first home buyers reaching $341,900 in December 2014. This is compared with $323,800 in December 2013 and just $168,300 ten year ago in December 2004.

Affordability remains a major issue for Perth as the median house price has more than doubled in the last decade. While the market is slowing and prices are likely to decrease somewhat, unstable employment, reductions in salaries and tight lending conditions will continue to impact on affordability.

It is a time of mixed opportunity for the property market. For example land developers in particular have said they are using this period of reduced demand to play catch up. Developers over the last few years have struggled to keep up with demand for new housing as Perth’s population boomed and unemployment was at record lows. Severe land supply shortages pushed the price of land in Perth up to levels that were out of reach for many potential buyers. A fall in dwelling approvals during the last half of 2014, particularly for private sector houses, is reflective of the overall slowdown in the new housing industry.

This year will be a time of adjustment to a new economic climate. The impact of further rate cuts will be interesting as we see whether they work to boost demand for property. It may well be the case that most people remain conservative in regard to spending as we head further into uncertain economic times.