Adelaide cooling as market reaches affordability limits

A cool Southern Ocean breeze has begun to descend on Adelaide’s piping-hot residential property market, as low affordability and high interest rates bite, signalling an end to the city’s historic housing boom. 

For half a decade the Adelaide market has led the nation — pipped only by the resources-fuelled market of Perth — and now things are slowly beginning to turn, according to experts. 

“I go to a few auctions every week and this weekend was probably the first week where I felt a little bit of a turn,” said Zach Hristodoulopoulos, of buyers’ agency Hristo. 

“I speak to a lot of auctioneers, and one for example had eight auctions, and four were passed in. 

“I’m noticing the first sort of glimpse that it is a bit quieter than normal, whereas previously everything and anything was selling,” Mr Hristodoulopoulos told Australian Property Investor Magazine. 

That Adelaide is coming off the boil is not unexpected — last month the city of churches made headlines after its median home price eclipsed that of Melbourne for the first time on record. 

According to CoreLogic’s Home Value Index, Adelaide home prices have exploded 69 per cent since the outbreak of Covid-19 in early 2020, more than double the growth of Sydney, and just below Perth, which shot the lights out, delivering a massive 74.6 per cent in capital gains. 

The median price of an Adelaide home is now $802,075 (compared to Melbourne’s $777,390), with prices rising 4 per cent in the three months to 30 September, up 14.8 per cent over the past 12 months. 

Values notched up a healthy 1.3 per cent in the month of September, according to CoreLogic, but on the ground, experts say sentiment is now slowly changing. 

“There really hadn’t been any signs of things slowing down in Adelaide, still huge demand for property coming to market,” said buyers’ agent Katherine Skinner of National Property Buyers. 

“What we are finding now, over the past three weeks, is we are seeing more stock and fewer people coming through. 

“It’s more of a shift in balance between supply and demand, the return of a more balanced market,” Ms Skinner said.

Incomes falling behind real estate market

Buying opportunities remain — but the market is fragmenting. 

Mr Hristodoulopoulos warns some suburbs in the outer northern and southern city fringes have seen prices grow to the point where they are unsustainable, and investors — particularly those from interstate — risk getting their fingers burned. 

“The prices have just gone crazy, but the incomes of the people that live in those areas can’t really support them,” he said. 

“People who live elsewhere see the purchase prices in those areas — which until not so long ago started in the 300s and 400s — and see the yields, but they don’t really understand the granular details.”

According to CoreLogic, the two strongest performing areas across greater Adelaide were Playford and Salisbury, both on the city’s outer northern fringe.

The City of Playford incorporates 34 suburbs, such as Elizabeth, Hillbank, Penfield and Angle Vale. Salisbury Council has 31 suburbs, including Para Hills, Salisbury, St Kilda, Valley View, Edinburgh and Ingle Farm.

Over the past 12 months median home prices in Playford soared 21.6 per cent, to $568,943, while prices in Salisbury grew 20 per cent, to $675,058. 

There was still good buying in Adelaide, but the focus was on blue chip real estate, such as established homes in the inner-city and quality coastal properties. 

“You can still pick up an established home, five to ten kilometres from the CBD, for $1 million here, which is not too bad,” Mr Hristodoulopoulos said. 

“The blue-chip properties I have no concern with, the incomes in those areas are quite strong.”

Ms Skinner said prime coastal areas such as Christies Beach and Port Noarlunga, about 30km south of the Adelaide CBD, remained highly sought after. 

“The southern coastal areas, the kind of local lifestyle market is very hot tight now,” she said. 

“What’s popular is substantial blocks that have the opportunity to support some high-quality development that can be delivered in the next five years. 

“We have a lot of local investors using equity from their own homes and putting money in the local market they are comfortable with, as they have up to $900,000 to invest”.

Housing affordability nearing a ceiling

According to CoreLogic, since early 2020, Perth, Adelaide and Brisbane have been the standout performers, with each city delivering capital growth at more than double the rate of all other capitals in that time. 

The relative affordability of those cities had been a key driver of that growth, but now prices had risen to the point where that advantage had evaporated. 

“It started with affordability, the price point was much lower, but then it started to creep up and up,” Mr Hristodoulopoulos said. 

In Adelaide the median house price is now $856,856 and the median price of an apartment is $564,854. 

Regardless, high net migration — “there a lot more coming in than going out” — and a lack of supply would help keep a floor under prices. 

He said the government was releasing new land for development, but developers were complaining much of its was unsuitable, due to salination issues or certain heritage zonings, which was pushing people back into the established housing market. 

Ms Skinner said existing investors did not appear to be selling, while many buyers were sitting on their hands, hoping for interest rates to come down. 

“We have a 250-property rent roll and we’re not seeing investors selling, they’re sitting tight,” she said. 

Those selling currently tended to be owner-occupiers, either upgrading or empty-nesters downsizing. 

“The lack of supply had been driving a lot of desperation and growth around the market,” Ms Skinner said. 

“Now a lot of people are waiting until next year to see if interest rates make things a little more affordable. 

“It will swing towards a buyers’ market very soon — this three-month period is potentially a great time to buy.”