The Smartline Report – June Edition

The month in review: Perth

By Herron Todd White
June 2016

As forecast, we find ourselves at the mid point of the year and still wondering if the market is approaching the bottom of the cycle or whether the decline in activity will continue for the remainder of 2016.

According to the Real Estate Institute of WA, sales activity in the March quarter decreased by some 33%, from 8,798 in the December quarter to just 5,852 in the first quarter of 2016. Over the same period of time, listings on the market increased by 6% to 15,277, well above historical averages and some 3,000 to 4,000 above a balanced market. It is likely that this figure may continue to increase over the traditionally subdued winter period.

Interestingly, first home buyers have increased their presence in the market and comprised 45% of all activity in the quarter, a figure that is a almost unheard of in the absence of a substantial government grant.

This activity assisted to decrease the median sale price from $545,000 in the December 2015 quarter to $520,000 at present.

Bucking the trend, the median sale price of vacant land has increased by 13.1% over the previous 12 months and by 8.9% in the March quarter, with the majority of transactions being for smaller allotments – possibly related to the heightened level of first home buyer activity. In fact, we remain very cautious about the market for vacant land, particularly in urban fringe localities, as the differential between established housing prices in sought after areas and new house and land packages in inferior localities continues to dissipate.

Similarly, areas which have traditionally attracted significant levels of investor interest are struggling to find their feet. A combination of a lack of confidence and restrictions in lender financing have put the brakes on many areas previously targeted by investors and speculative developers. This situation becomes more dire in several regional centres where many lenders are restricting financing on a postcode basis, severely limiting the ability of potential buyers to secure finance and therefore exacerbating the decline in values. Established housing in many well established localities is approaching land value in comparison to the prices being asked (and paid) in some outlying, traditional first home buyer areas.

Many agents are indicating an uplift in enquiries over the past four to six weeks, however we have been through several of these mini cycles in different areas over the previous 18 months. The difference in this instance may well be the latest interest rate reduction by the RBA. We have received feedback from several finance brokers that their clients were or are waiting for fixed rates to be reduced before committing to an upgrade of property or location. This may result in some pent up demand and a spike in activity, however we caution that we do not expect values to improve in the short term.

Amongst all the negative statistics, we are seeing many positives in the current market – assuming you are a buyer who has a stable financial position. Many desirable areas have seen downward pressure on values, hence we are hearing about (and seeing) many contracts that appear to be well below current market parameters and indicate a level of bargain buying occurring from forced sellers. Given the high level of first home buyer activity in the market, we anticipate a wave of trade up transactions to occur throughout the remainder of 2016.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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