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The month in review: South Western WA
By Herron Todd White
June, 2010
What is happening in the markets of the southwest of Western Australia? This seems to be the question of the
hour. On the face of it, everything appears to be on the
up and up with the median house price rising steadily,
particularly since December. There was a flurry of sales
activity as 2009 came to a close, with discussion about
a new boom and the hope that it wouldn’t distort the
market again.
It seemed that normality had returned, but it is worth
looking a little closer at what is happening behind the
numbers. The most obvious thing is the first homebuyers’ market came to a rapid and abrupt halt at the end of the
government boost, leaving the market almost entirely to
investors and buyers moving up the scale. Inevitably this
class of buyer are purchasing higher valued properties,
and with no first homebuyers at the bottom of the market,
the effect is an increase in the median house price (that
often quoted headline given as proof of a rising market).
Initially this was a reasonable reading of the situation,
as with the low interest rates, confidence returning to
the job market, a recovering world economy and large
infrastructure projects on the go both locally and state
wide, purchasers returned to the market in substantial
numbers and properties that had been on the market for
up to two years sold, if at a discount to the peak of the
market.
In the past couple of months however, the number of sales
has been on a downward trend
and anecdotally there seems to be a direct correlation
between the Reserve Bank interest rate rises and the
number of purchasers in the market. As valuers, we tend
to see our work flowing approximately a month behind
the sales in the market. The past couple of months have
seen two steady weeks and two quiet weeks, with sales
slowing considerably for two weeks after a rates rise and
then returning after a period of re-evaluation.
As we have been told repeatedly, interest rates are only
now at average levels, however the cumulative weight of
so many rises over a relatively short period of time seems
to have had had a significant negative effect on sentiment
and confidence. It appears to be ‘rate rises by water torture’,
i.e. one drip at a time, but combining to slow the market
more than would be expected. Given that the rates, in
historical terms, are only at moderate levels, an outside
observer - looking in with no background information -
may wonder what is causing the uncertainty?
So how does this set of situations affect the buyers in the
market? The trend appears to be fairly consistent across
all value ranges with a steady volume of buyers looking to
move to the next level, or purchase the next investment
property, albeit in a fairly cautious manner and only after
a thorough investigation of the market. There are still
bargain hunters waiting for a great buy. The investors are
somewhat ambivalent as the rental returns are on the
increase and looking like getting back to the old standard
of $1 of rent per week for every $1000 of purchase price,
e.g. a $300,000 house renting for $300 per week. This is
better than it has been but the down side is that capital
gains have been limited and so the overall return has not
been great. Investment decisions are not made lightly as
a consequence.
Other buyers have remained largely the same as in
previous years, with migration from both overseas and
interstate bringing a steady stream of new buyers and
renters to the area. This is likely to be the most important
driver of the market over the long term. With a possible
shortage of land looming and continued rapid population
growth, supply and demand may well drive prices up in
spite of all the uncertainty. But, for now, it appears as
though many people are prepared to sit and wait for that
special property that is just right to come along, before
being prepared to commit to a purchase which may well
be a wise thing to do for now.
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