The South Australian economy has been a surprise performer recently and was the only state to record positive economic growth in the first quarter on the back of strong private investment and solid consumption. As a result the median house price falls in Adelaide have been the smallest of all states, down only 1-2% over the past year.
However, top end suburbs that had experienced double-digit price growth in the previous year have seen it come off around 4-5%. The number of property transactions has fallen around 20% in the year, shielding the market from greater falls. Housing finance approvals have turned around by 20% in recent months in line with the national average, but the past couple of months have been patchy due to relatively less activity from first home buyers. 
Transition from renting to buying has seen vacancy rates rise towards 2%. Yet rental markets remain tight as solid rental growth of around 7% has taken place in the last year.
However, recently numbers of first homebuyers seem to have softened, representing only 20% of the market (excluding those refinancing) – the lowest of any state. So it seems, unlike other states, some momentum has already come out of the market. Latest price figures suggest prices were flat in May, not building on the 1-2% gains made in the previous few months. With the SA economy likely to come under increasing pressure, particularly as the manufacturing sector bears the brunt of the downturn, we anticipate prices will track broadly sideways over the medium term, edging upwards thereafter.
Many have said of the Perth housing market “what goes up must come down”. After coming so far so fast it is not surprising to see prices come off peaks as the economy slows and the commodities boom wanes. Median prices have fallen 10% in the last year and for those that bought at the peak of the market this is clearly not good – if they are forced to sell now.
But a little context is also helpful; house prices rose 100% in five years from 2002 onwards, so a 10% fall does not seem too bad. Prices have eased across much of the market, but larger than average falls have characterised the very top end. The numbers of transactions has wallowed at low levels for some time but have been starting to climb steadily (but modestly) in recent months. This suggests, combined with a solid increase in demand that median prices may begin to bottom out.
However, reflective of the still subdued market conditions, overall finance approvals are only up 9% over the past six month (20% Australian-wide). Of the pickup in demand, again it is first home buyers leading the way, accounting for 48% of mortgage approvals. First home buyer interest has seen prices in some suburbs (where prices are at or below median) buck the downward trend and record price gains in recent months, but performances remain patchy. With the rental vacancy rate now at 2.9%, rental growth has slowed considerably.
The Perth housing market as a whole will most likely remain subdued but the return of demand for commodities in coming years will see both the economy and housing market recover well.
The Tasmanian property market has been the most resilient in the country, supported by an ongoing solid economic performance and relatively high population growth. Unlike other states, according to the ABS, the Hobart market has not experienced consecutive quarterly price falls and is the only state capital to post price rises over the past six-months.
The market has been driven by solid inward migration from the mainland, with cashed up
‘tree changers’ finding the lowest median house price in Australia well within their means. First home buyers have also been very active, accounting for over 50% of recent mortgage approvals (excluding those refinancing) the highest level in the country.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
