Is Perth property now unaffordable?

Perth’s property market has been so hot in 2024 that you could be excused for thinking that a park bench could be listed for sale and set off a bidding war.

Interstate buyers have been gobbling up listed properties sight unseen, real estate agents talk of properties being sworn to waiting east coast investors before they even reach the public domain, and asking prices are frequently exceeded by six figure sums.

CoreLogic’s latest home value index shows Perth’s prices have risen 24.4 per cent in the 12 months to August, overtaking a stagnant Melbourne for median dwelling values.

The current boom is also generating more market heat than the previous major growth phase of 2013-2014. A decade ago, despite rising property prices, around 45 per cent of houses were recorded as selling for less than their listed prices.

Today that figure sits at just 12 per cent.

Many sellers are receiving multiple offers, with nearly 90 per cent of houses selling for more than the listing price. REIWA data for Perth house sales shows they are selling for about 4 per cent more than the listing price.

To find a time when competition was intense you need to rewind to 2006, when houses on average sold for 3.2 per cent more than the listing price.

Conditions in the market today mirror that of the explosive 2001 to 2004 era. Listings are low, rental vacancies are at record lows and yields up, and Perth’s median price is comfortably below that of it eastern capital city counterparts.

Only high interest rates are putting any braking power on the rampant market and they may well begin to ease in the next year or two, potentially leading to a period of sustained price pressure.

So can Perth property prices now be deemed unaffordable?

Housing affordability in Western Australia did indeed decline over the June 2024 quarter.

REIWA data released Thursday (12 September) showed the proportion of family income required to meet loan repayments in Western Australia increased 1.7 percentage points over the quarter to 39.5 per cent.

This was an increase of 4.8 percent year-on-year, based on a median weekly family income of $2,630 and an average monthly loan repayment of $4,504.

REIWA CEO Cath Hart said strong price growth over the past year had impacted affordability.

“A year ago, price growth was relatively low, but 12 interest rate rises saw mortgage repayments increase by nearly 50 per cent, which has affected housing affordability,” she said.

“However, interest rates have been stable since November 2023 and what we’re now seeing is the effect of strong price growth on affordability.”

The Perth median house price increased 20.5 per cent in the year to June 2024, which has seen the average mortgage increase 16.1 per cent over the same period, according to REIWA.

Despite the decline in affordability, WA retained its position as the most affordable state for home owners. Only the ACT (33.3 per cent of family income) and the Northern Territory (32.4 per cent of family income) were more affordable.

The two territories and Victoria recorded small improvements in affordability over the quarter while all other states saw a decline. South Australian home owners recorded the largest decline in affordability (1.8 percentage points), closely followed by WA. New South Wales remained the least affordable state in the nation, with home owners requiring 57.9 per cent of family income to meet loan repayments.

“Perth has indeed seen prices rise quite dramatically but it is coming off a low base after about a decade of underperformance at a time cities like Sydney and Brisbane were rising rapidly.

Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, dispelled any notion that Perth property had run its race or reached an affordability limit.

“The pace of growth will likely slow in 2025 but for those looking to buy a family home or invest in Perth property, they’re unlikely to benefit from delaying a purchase decision.

“The outer suburbs in affordable areas have been the real standouts over the past couple of years of growth in Perth, but the middle to upper price ranges still represent value compared to other capital cities.

“Perth is still only fourth among the capital cities when it comes to median dwelling values and rental price growth and low vacancy rates are still appealling to investors,” Ms Kelley said.

That rental appeal is evident in the latest CoreLogic data. Perth is now second for unit rental yields (behind Darwin) and only behind Darwin and Hobart for house yields. It’s second nationally for overall dwelling gross rental yields.

Perth buyers agent Peter Gavalas dismissed claims the city is no longer a viable option for homebuyers, arguing the economic fundamentals would support further growth and calm potential market volatility.

“The city’s diverse economy and thriving job market have provided a solid foundation for sustained economic growth,” he said.

“This economic growth has contributed to the city’s strong population increase, which has in turn resulted in a very high demand for housing and this has put upward pressure on property prices.

“But this also means there are opportunities for investors who can provide rental homes for the city’s growing population,” said Mr Gavalas.

“The clear connection between prices and population growth also highlights the market’s resilience, showing it is supported by real demand and not speculation.”

“Western Australia remains an affordable place to live compared to other states,” he said.

Domain’s Price Forecast Report for 2025 predicts Perth, Adelaide, Sydney and Brisbane will lead the price gains next year.

Units in Perth are tipped to rise a more modest 4 to 5 per cent.

The Real Estate Institute of Australia Housing Affordability Report for the June 2024 quarter measured housing affordability by taking the median weekly family income across each state versus the proportion of that income required to meet loan repayments.

The results showed that housing affordability in Western Australia is at 39.5 per cent. This was the third best, behind the Northern Territory (32.4 per cent) and the ACT (33.3 per cent).

Rental affordability was similar, with Western Australia at 23.6 per cent, lying fourth behind the ACT (19.1 per cent), Victoria (21.9 per cent) and Queensland (23.0 per cent).

Loan activity up in WA

REIWA’s Ms Hart said WA home buyers had not been deterred by the decline in affordability, with loan activity increasing over the June quarter.

“The total number of loans to owner occupiers in WA increased 13 per cent over the three months to June and 7.1 per cent over the year to 10,836,” she said.

“First home buyers were particularly active, making up 38.1 per cent of the owner occupier market.

“The total number of loans to first home buyers was 4,133, up 9.2 per over the quarter and 2.6 per cent over the year.”

The average loan to first home buyers was $475,393, up 4.5 per cent quarterly and 17 per cent annually.

WA remained one of the most affordable locations for first home buyers, with only the Northern Territory ($414,833) and Tasmania ($422,244) more affordable.

Overall, WA recorded the largest percentage increase in owner occupier loan size of any state or territory over the quarter and year to reach $546,964. This was 5.3 per cent higher than the March 2024 quarter and 16.1 higher than the same time last year.

Ms Hart said WA’s increase reflected the strong price growth over the past year.