Brisbane property market update June 2022

At the moment, it is difficult to pick the patterns of change because within the same suburb, we are seeing some properties with very high demand selling very quickly and achieving strong prices, whilst at the same time we are seeing other properties either sit on the market without much buyer interest, or we are seeing properties pass in at auction with little bidding activity. It is very specific to each property and the demand that each individual property generates.

We are also seeing a shift in demand in some locations away from housing stock towards the unit and townhouse market, most likely driven by affordability constraints. This is evidenced by a higher volume of people turning up to open homes, which generally translates to more offers due to more competition from buyers, and the result is a faster sale. This is not a surprise when there has been much stronger 12-month growth in the housing market in Brisbane, up 27.4 per cent, compared to the unit market, which grew 15.8 per cent over the same period. 

Units and townhouses are providing a more affordable option for buyers who are happy to compromise on the property type to stay in their preferred locations.  The median value for a house in Greater Brisbane is now $892,133, whereas the median value for a unit is much lower at $501,074.

In fact, throughout June, median values in the housing market in Brisbane remained unchanged, according to CoreLogic data, whereas the unit market increased 0.8 per cent. Remember, houses make up a much larger portion of the total dwellings in Brisbane, compared to units. 

For two months, we have now observed the unit market in Brisbane outperform the housing market. This is in line with the demand we have been seeing on the ground for the different property types. 

A large contributing factor to the changing circumstances in Brisbane is the negative sentiment that exists throughout the market. Off the back of the sharp increase in inflation, we have seen a somewhat sharp increase in mortgage rates. 

Whilst the RBAs interest rate hikes have been a necessary step to return rates to more normal levels, the hysteria around the reporting of these moves has created a lot of concern for many buyers. The mass media can have a significant influence on consumer sentiment, and it is not surprising that a lot of buyers feel uncertain about the future, given many reports that have been released in relation to proposed property price falls in the future.

The reality is that a change in consumer sentiment might be all that is required to fuel the Brisbane property market once again. This is due to the fact that Brisbane has very strong underlying housing market fundamentals.

Supply levels, as measured by listing volumes, are still down 18 per cent in Brisbane, compared with 12 months ago, according to CoreLogic, and listings are still trending well below the five-year average across the city. This trend is specific to Brisbane, because when we look at listings in both Sydney and Melbourne, listings in those two cities are now trending above the five-year trend. The lower volume of properties available for sale, combined with a lower volume of building completions, is limiting the number of available choices for property buyers and therefore suppressing the amount of available supply throughout the city.

Whilst we are now definitely seeing suppressed demand due to the environment of rising interest rates and the impact that this is having on consumer sentiment, there is still a sufficient level of demand throughout Brisbane to match the properties that are coming up for sale. 

We have to remember that in Queensland, jobs growth has been outstanding in the last 12 months, and we now have record-low unemployment. It is very likely that we will start to see wages increase in this environment.

The rate of interstate migration into Queensland has also picked up significantly, most of whom have settled in the south-east corner of the state. And now, with international borders reopened, housing needs are greater. More people need homes, and while not everyone buys when they move to a new area, there is also a lack of rental properties available for those who choose to rent instead.

The city-wide rental vacancy rate in Brisbane is now 0.6 per cent. There is a city-wide rental crisis. Given the lack of rental supply, coupled with the increased rental demand, price surges have been evident across the city. Below is a summary of the vacancy rates across each region of Greater Brisbane, according to SQM Research.

CoreLogic median data is reporting house rents have increased 13.2 per cent in Brisbane over the last 12 months, leading the rental price growth for houses throughout all of Australia. In contrast, unit rents have increased 8.8 per cent over the same period, behind the unit rent growth in Melbourne, Sydney and Adelaide. In some areas, the rental increases have been a lot sharper than this, with increases in excess of 20 per cent in some suburbs throughout the city.

Source: CoreLogic

Due to the rapid increase in rents, we are now seeing gross rental yields improve in Brisbane. Across all dwellings, gross rental yields are now 3.6 per cent, up 0.1 per cent from last month. This is also providing an inflation hedge for investors as they shy away from the volatility that comes with the financial markets.

Perhaps due to the fact that interest rates have been falling for so long, many people are not used to, or have forgotten, that interest rates do move up and down. Changes to rates do have a material impact on demand, and especially consumer sentiment when the messaging around interest rate rises can be so influential to a market. What they don’t change are the underlying fundamentals in relation to a market.

It is very unlikely that we will see a lot of distressed selling in Brisbane, especially given we have record-high employment participation rates and relative affordability. This will help property owners to meet debt repayment obligations, despite rising interest rates and high inflation. We must also remember that there has been a substantial increase in repayment buffers as borrowers have built up their savings safety net during the pandemic. Additionally, anyone who has purchased a home recently will have been assessed under a mortgage rate scenario 2.5 basis points above the original rate they were offered, and this has actually increased to an assessment rate that is now 3 per cent higher, since October 2021. 

Despite the broader market weakness, there will always be areas and properties that perform well, and others that may not. We will continue to see high demand for some properties and little or no demand for others. When we move into a transitioning market, like the market we are in now throughout Brisbane, understanding the fundamentals becomes critical, as the rising tide will no longer lift all ships. There are markets within markets, and local drivers of supply and demand will become even more important in identifying locations that will continue to perform, compared to others. 

Whilst there are many commentators suggesting that property values in Brisbane will fall, we remain of the opinion that quality properties that are in high demand, despite broader market conditions, will maintain their value now and continue to grow in value into the future.