Is Melbourne going the way of Perth? Or is Perth the new Melbourne?
It’s one of the traps when we talk about the “property market”. Normally, we’re talking about a level of analysis that’s so broad that it’s almost meaningless.
And that’s definitely true at the national level. The national growth rate is indicative, but it can mask a lot of variation at the state-by-state level, let alone at the suburb-by-suburb level.
In recent years the big split has been between the West Australian property market and the east coast.
As the mining boom in WA wound down, the WA property market – and lets focus on Perth here – started to decline.
After peaking in June 2014, property prices in Perth are now down 22%, which is the longest bear market in that city’s history.
And all this was happening while prices in Sydney and Melbourne were booming.
But now Covid has come along and totally changed the game up. WA is still Covid free, and to my mind is a serious flight risk.
With the rest of the country trying to force WA to open up, that’s got to be fanning the flames of succession.
And in terms of market outlooks, the boot is on the other foot, with the east coast capitals – particularly Melbourne – set to bare the brunt of a Covid-driven slow down in prices.
Prices in Melbourne are already falling faster than in other states, and that’s before we account for the recent stage-four lockdowns.
CoreLogic’s head of research, Eliza Owen, reckons there’s two factors driving the compression in Melbourne:
As has been explored in recent weeks, the steeper decline across the Melbourne market is two-fold. Cyclically, Melbourne property is subject to more volatile growth rates, and is also presenting strong declines off the back of very high growth rates through the previous upswing. Structurally, there has been an enormous demand shock to the Melbourne property market with the closure of international borders, where Melbourne previously had the highest level of net overseas migration of the capital city markets.
This is similar to the Sydney housing market, which received the second highest volume of net interstate migrants over 2018-19.
Victoria has also seen the largest decline in payroll jobs of the states and territories, according to ABS data…
It is true that Melbourne normally gets much bigger immigration numbers:
The Perth market, by comparison, remains much less reliant on immigration.
And with Covid contained, the outlook for Perth is relatively buoyant. In fact, Perth Now reckon that the “property market continues on road to recovery”:
“Although Perth’s overall median house price remained stable in July, reiwa.com data shows one in three suburbs recorded an increase,” Mr Collins said…
Mr Collins said with the WA property markets returning towards normality, it was time to consider the emergency period tenancy legislation for residential and commercial properties and allow it to end at the proposed time of September 29, 2020.
“Once the moratorium on rents finishes in September, landlords will be able to increase rents if they choose to,” he said.
“We also expect that the low level of available rental stock will drive up prices, which is why it’s important to encourage investment in WA — extending the legislation will deter investors and make the situation worse.”
We’ll see. Perth has offered us the green shoots of recovery before, only to disappoint.
Still, the point is that this is a Covid market. The slowdown in Melbourne is entirely driven by Covid (and will therefore rebound when Covid passes), and the existence of Covid will drive outcomes across the states.
So we’re probably looking at a very patchy market in the near term.
Not that I think this means sell Melbourne and buy Perth. I think these are short-term trends we’re looking at here.
But still, don’t be surprised if Perth is top of the pops come the end of the year.