Brisbane buyers’ ‘irrational exuberance’ to roll through next year

Brisbane’s unprecedented buyer demand is likely to continue to push up house prices through the back half of 2021 and into next year, but investors have been urged to act fast to maximise the benefits of the boom.

Leading property economist Michael Matusik said evidence was mounting that Brisbane’s remarkable run, which CoreLogic said has pushed up median dwelling prices by 10.3 per cent over the past 12 months to a record of more than $573,000, was set to continue.

And while Mr Matusik, who described buyer activity as “irrationally exuberant”, said the growth would likely moderate in the back half of 2021, it was not likely that values would begin to fall as the Brisbane property cycle advances.

“If I was to summarise the short-term outlook, we are actually in a recovery phase of the market, there’s certain phases in the property cycle - recovery, upswing, downturn and stagnation,” Mr Matusik told a recent event in Brisbane hosted by Australian Property Investor Magazine and CDL Australia.

“What normally happens is the recovery takes about 18 months, the upswing takes six to 12 months, then peaks and starts to calm down.

“I think it’s going to accelerate faster than that, but for the next six to 12 months we’re going to see improving conditions generally in sales, and while there will be less price growth in the back half of this year and into 2021, I don’t think that price growth is going to stop, it’s just going to be less than the current momentum.”

Mr Matusik said he expected Brisbane values to grow between 15 to 20 per cent between now and March next year for a “generic property”.

“If you asked me if that would happen two years ago, I would have said ‘no, that’s not possible’, but COVID has reset things,” he said.

“We’ve had a loosening of finance, money is relatively cheap, we have policy settings that are loose, we have a fair bit of money washing through the economy in terms of handouts and grants and so forth, those people who actually are in the professional space have largely been making money and that’s washing through the market, and we’ve got interstate migration.

“Again, it’s not going to be a long-term thing, but it’s there now, and it’s pushing price growth, and for many, you would be silly to miss it.”

The key driver to Brisbane’s demand surge is the city’s relative affordability.

Mr Matusik said while many simply compare median house prices in different locations to measure affordability, he believed a more accurate measure was to analyse the median price in a particular location in comparison to its median household income.

“Brisbane is more affordable versus the median income than most locations except for Darwin, which is a small market, or Perth, and Perth is a long way away and likes to have a big border around it these days. 

“Brisbane is cheaper than Hobart, it’s cheaper than Canberra and it’s about on par with Adelaide. 

“That’s one of the reasons why people are investing here and a lot of people are saying ‘I can buy in Brisbane because it’s quite affordable, I think we’re going to move there post-COVID’.”

Mr Matusik said population growth was another big factor, with South East Queensland racking up a nation-leading level of interstate migration throughout the pandemic.

But he said another consideration that would likely be even more crucial in maintaining Brisbane’s price momentum was the city’s undersupply of properties as compared to demand.

“One of the things that is quite poorly understood in Brisbane although it runs off the tongue too easily from commentators, particularly from interstate, is that there are way too many buildings in Brisbane, there is an oversupply of stock and there are too many apartments," Mr Matusik said.

“That has not been the case for a couple of years, and because the supply is slowed down due to higher building costs, particularly in apartments in recent years, but the population growth and underlying demand is quite strong, and particularly of a market that is downsizing, you are seeing an undersupply overall of dwellings. 

“It was oversupplied in the recent past, but it is now undersupplied.

“This market at the moment, even with the COVID impact, is not supplying enough stock to cater for the underlying demand. 

“It is also very undersupplied in terms of the resale stock on the market, that’s one of the reasons that’s pushing prices up as well.” 

For those looking to take the plunge into Brisbane property, Mr Matusik said there were several aspects of the market that investors should consider, outside of macroeconomic factors.

He said location was crucial, with investment success often closely tied to the desirability of a location for work and recreation, as well as its proximity to quality social infrastructure such as hospitals, schools and transport.

“You want to buy in a place where there’s actually a volume of sales and you can resell in that market and probably get more than what you have paid for it,” Mr Matusik said. 

“You want to buy something that is unique and you want to buy into an area that has some character and diversity. 

“That’s not only housing diversity but trees, a mature area, a view, or a landmark that’s unique and adds to the local character.

“And gentrification is something that’s quite good. People have made the most money in property, particularly buying in new projects, if they buy early and they buy in an area which is going to gentrify.

“Change is good, and buying early in that cycle often pays.”