Sometimes, it not what you say but what you don’t say that gets people’s attention…
Not too long ago I talked about the plans of the new government to re-direct $4.5 billion from foreign aide into roads and transportation in the big three capital cities of Sydney, Melbourne and Brisbane over the next four years or so.
When that happens, it will open up surrounding suburbs and cause an economic boom in those areas. And that’s a good thing, by the way.
So naturally, when I heard from one of my students from WA, he rightly asked about the growth of Perth and its surrounding areas. I didn’t mean to leave it out of the discussion, I told the young man. I promised to make it up to him…and to all of you in WA in general, and particularly to those in Perth…
Because the truth is, he had a point. PERTH IS A GREAT PLACE TO BUILD YOUR PORTFOLIO.
Happily, things in Perth are going quite well. The real estate market has had a fantastic year so far. And why not? It is Australia’s fastest growing city.
In fact, some mortgage firms are seeing an increase in appraisals of over 30 per cent from this time last year and spring is when housing sales—and prices—both tend to rise.
This is generally true across Australia, though. Internet searches for homes are up this time of year over last by 80 per cent and mortgage volume is expected to increase by over 70 per cent as well. Perth and its suburbs are certainly a part of that market growth.
And Perth’s growth is quite understandable. For a long time, wages were only a bit less, on average, than those in Sydney or Melbourne, but the average house price in Perth was over $250,000 less than it was in those other two capital cities. Today, that difference just over $150,000.
The price point in Perth real estate has certainly changed, hasn’t it?
But what else is fueling the surge in Perth’s housing market? Several factors are in play there…
For one thing, the lower cash rates have helped Perth’s property market just like it has helped other Aussie property markets. But there are other factors…
Consumer confidence is high, which means that people are less afraid to spend money. That’s actually quite an important bit of information. When consumer confidence is low, people tend to buckle down and keep there expenses low.
They are also what economists call “risk averse.” When consumer confidence is low, home buying is usually the last thing on their mind. When it is high, the market returns. People feel good about how things are going and are more likely to take on long-term commitments like buying a house.
As you might guess, consumer confidence in Perth is at its highest for the year. That confidence is reflected in rising housing prices as more buyers come out from behind their hiding places and get into the market.
And many of those buyers are new buyers. They are the younger generation, ready and willing to get into their first property. They haven’t been scarred by previous experience with falling housing values, the GFC and all the rest.
Many of these new buyers tend to be single or at least without children and prefer urban flats and townhouses to buying out in the newer suburbs with the strip malls and schools. This demand from the new generation has driven urban prices in Perth up over 3.5 per cent in the past few months alone.
As you would expect, real estate sales for the first half of 2013 have really improved by quite a lot. They are higher than the first half of 2012 by 25 per cent, and by 55 per cent over 2011. Median house prices are around the $525,000 mark, with urban housing hitting levels never before seen.
And, with the low cash rate, we’ve seen the Australian dollar begin to lose a little value in the global currency markets. I expect that we will see the Aussie dollar lose more value before too long. A cheaper dollar helps the economy and supports consumer confidence, so there’s a lot of connection between these factors.
Now, some will say that Perth is in the boom part of the cycle and is ready for values to fall. But that isn’t likely for the next several years, at least. That’s because not only is Perth growing fast, but also so is the rest of WA. With only 11 per cent of the population but supplying 16 per cent of GDP, there is lots of room for continued growth and development from pent up demand being released into the economy.
Perth will certainly benefit from both…and so will your portfolio.