Why city-level property market comparisons can be misleading
When it comes to offering opinions on the state of Australia’s housing market, many commentators like to compare cities with cities.
It might be a case of “Brisbane rising quickly” while “Perth takes a breather” or “Melbourne’s housing market remains flat”.
The comments are applied to each city in its entirety, rather than checking what’s actually happening on a more granular level.
Here’s what you should be studying.
To obtain a better-informed understanding of what is happening on the ground in our capitals, it’s necessary to study market conditions at the suburb level.
This can show investors where they should consider purchasing and where they should avoid.
For example, in Sydney prices are forecast to continue to enjoy growth throughout 2024.
Sales volumes are lifting while new listings remain low.
This will result in the overall market shifting from ‘neutral’ into ‘seller’ market territory with prices increasing by up to 10% per annum.
However, this will not be the case for all suburbs.
Take Chippendale for example.
In this small, inner-city suburb, the current median house price is $1.82 million.
According to our Property Predictions Database, the suburb’s real estate market is currently experiencing ‘boom’ conditions which means prices are rising by more than 10% per annum.
Looking ahead though, these conditions are predicted to shift towards a more conservative growth pattern within the next 9 to 18 months.
Should this transpire, median prices may begin to decline over this time.
Turning our attention to Melbourne, residential property prices are experiencing a slow decline, however, this is likely to change in the not-too-distant future.
With listings currently declining, sufficient pressure will be put on prices to lift them from slightly negative into ‘seller’ conditions.
On consulting the database, however, it becomes clear that these conditions won’t occur in all suburbs.
For example, consider the suburb of Mount Macedon where the median house price currently sits at $1.44 million.
According to the database, the current ‘boom’ conditions appear likely to swing back to less aggressive growth conditions and possibly decline in value within the next 4 to 12 months.
Careful research will be required before investing there.
Looking north, Brisbane has been enjoying strong growth and this is likely to continue.
Median house prices are rising and the database indicates this will continue as the overall city shifts from ‘seller’ conditions into ‘boom’ where prices are increasing by more than 10% per annum.
However, in the outer western suburb of Brookfield, where median house prices are currently $1.76 million there is a different picture emerging.
According to the database, conditions are currently in ‘boom’ however this is likely to deteriorate during the next 4 to 12 months.
Should that occur, prices may begin to slide back over this time.
Perth’s property market has enjoyed a period of strong growth in recent years.
House prices have grown more than 20% over the past 12 months, looking ahead, this rate of growth is likely to ease to becoming rates of growth in the ‘-teens’.
Either way, the overall market will continue to experience ‘boom’ conditions.
In the suburb of Munster, some 30km from Perth, median house prices are currently $660,000 and the market is experiencing ‘neutral’ conditions.
This means prices are neither rising nor falling.
However, according to the database, this is likely to shift into a ‘boom’ within the next 9 to 18 months. Purchasing there may reward an investor with strong capital growth.
It’s clear that monitoring property prices at the suburb (rather than city) level will give you greater insights into areas you may wish to consider investing.
Due diligence at the suburb level is likely to reveal properties that deliver strong growth while throwing up others where warning signs might be flashing.
So, don’t simply be guided by predictions for our major capitals – ensure that you monitor activity at the suburb level before buying.
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