Property market update: Brisbane, July 2022

The Queensland capital’s entry into the negative growth territory proves that the market downturn is becoming more widespread, with CoreLogic’s latest data showing that the rate of decline is observed to be on par with the global financial crisis in 2008.

Weighing in on the latest monthly figures, CoreLogic’s research director Tim Lawless said that while markets have been losing momentum even before the Reserve Bank’s monetary policy tightening kicked off in May, the recent rate hikes have had a significant impact on property values.

“The rate of growth in housing values was slowing well before interest rates started to rise, however, it’s abundantly clear markets have weakened quite sharply since the first rate rise on May 5,” the expert stated.

In total, interest rates have shot up by 1.75 percentage points over the last four months to currently stand at 1.85 per cent in August, as the central bank took decisive steps to reign in the surging inflation.

But local experts argued that the Sunshine State capital’s downward trajectory is not as precipitous as that of its southern cousins, Sydney and Melbourne.

Melinda Jennison, the managing director of Brisbane-based buyer’s agency Streamline Property Buyers, said that there are still sectors in the city’s property market that are performing well — particularly the unit market.

“We are now seeing a split market whereby the median value for houses has retracted, whilst at the same time, the median value for units and townhouses has continued to grow,” she stated.

Domain’s chief of economics and research Dr Nicola Powell said that despite the increasing market downturn, Brisbane is still showing resiliency when compared with other capital markets.

The expert’s comments come off the back of Domain’s latest House Price Report, which showed Brisbane’s median house prices hit a record high of $840,594 after rising 0.2 per cent over the June quarter and 24.7 per cent over the year. Meanwhile, unit prices rose by 1.4 per cent over the quarter to reach a record $448,383.

“There is no doubt that demand for Queensland property remains stronger compared with other capital cities,” she stated.

But she highlighted that market conditions in the city are also shifting, commenting that “buyer conditions are loosening”.

As the Reserve Bank continues to raise rates throughout the rest of the year, how will Brisbane’s property market react? And when are experts forecasting a potential rebound for the city?

For now, let’s take a closer look at how the city performed in July 2022.

Property values

CoreLogic’s data showed Brisbane’s dwelling values edged into negative growth territory for the first time since August 2020, falling by 0.8 per cent in July. Last month, the city was still in the green, posting a 0.8 per cent month-on-month increase.

Despite the significant slowdown in growth, Brisbane’s retraction is not as great as the fall in median values in Sydney, where dwelling values fell -2.2 per cent. Other cities such as Melbourne (-1.5 per cent), Hobart (-1.5 per cent)and Canberra (-1.1 per cent) also posted steeper declines than the Queensland capital.

On a quarterly basis, the city posted a 0.1 per cent increase. While the figures remain positive, it is a steep decline from the 2.7 per cent increase seen during the three-month period to June.

Compared to the same period last year, Brisbane’s dwelling values are up by 22.1 per cent, which brought the average price of a property in the city to $781,850 — representing an almost $3,000 month-on-month decline in the median cost.

Median values for houses across Brisbane declined 1.1 per cent in July, nosediving from its flatline performance in June.

With the housing market’s annual growth rate now at 23.3 per cent, the average price of a house in the city currently stands at $884,000, which is $8,000 lower than last month.

Meanwhile, the unit market in Brisbane increased by 0.7 in July, slightly easing from the 0.8 per cent gain the sector recorded in June.

The current median value for Brisbane units is now $504,000, which is $3500 more than last month.

CoreLogic noted that the gap between house and apartment prices in Brisbane continues to be at its widest in at least two decades, but it is set to shrink over the next 12 months as housing affordability bites and buyers choose cheaper options.

According to Ms Jennison, there has been an observed shift in preference on the type of property being purchased.

“We have observed the shift in demand over recent months away from housing and towards quality townhouses and units. Perhaps this has been stimulated by affordability constraints due to the rapid growth in Brisbane house prices over the last 18 months.

“A $500,000 budget used to be sufficient for a reasonable house on its own lot within 30 kilometres from the Brisbane central business district, but now, that budget typically needs to be a lot higher,” she commented.

She added that the trend might be due to buyers choosing to compromise on the type of property rather than moving farther from the CBD.

“Instead of shifting further and further away from the CBD to buy a house with a similar budget, buyers have been choosing to compromise on the type of property that they buy and look for townhouse or unit options much closer to the inner-city locations,” Ms Jennison said.

This shift in demand is evident in the data in recent months. From April this year, the unit market has outperformed the housing market in terms of monthly median price growth in Brisbane.

And despite negative house price growth for the first month in two years, the unit segment of the market continued to see value growth.

While the gap between house and apartment prices in Brisbane remains at its widest in at least two decades, it is forecast to shrink over the next 12 months as buyers choose cheaper options.

Supply and demand

The trend of supply in Brisbane followed the traditional winter seasonal pattern, as the total number of properties listed in the city rose over July.

Data from SQM Research showed that total residential listings rose by 11.1 per cent over the month, rising from 18,635 in June to 20,697 in July — the largest increase across all cities.

Compared to July 2021, the number of available stock in the city is still down by 10.2 per cent — making Brisbane the second-biggest decliner on an annual basis, following Adelaide.

Keeping in line with the trend during the winter months, new listings (or properties that have been on the market less than 30 days) in Brisbane rose by 0.4 per cent from 7,905 in June to 7,940 in July. Compared to the same period last year, new listings in the city are down by 7.4 per cent.

Meanwhile, old listings or property listings over 180 days fell by 2.9 per cent from 1,907 in June to 1,851 in July. On an annual basis, old housing stock in the city is down by 47.9 per cent.

Separate data from CoreLogic showed that advertised listings in Brisbane are still down 13 per cent in the city compared to the same period a year ago, while total supply remains 30 per cent below the five-year average across the city.

Mr Lawless noted that this trend is specific to areas such as Brisbane, Adelaide and Perth. The opposite scenario is true for Sydney and Melbourne, where listings are now trending above the five-year pattern.

On the demand side, data showed sales activity over the three months to July was -16 per cent lower relative to the same period in 2021.

While the flow of new listings has followed the normal, seasonal pattern through winter, the supply and demand dynamics across the country are set to take a new course in spring, when new listings ramp up at a time when demand is likely to be weaker, according to Mr Lawless.

“A more substantial flow of advertised stock against a backdrop of falling demand is great news for active buyers, who will have more choice and less urgency, but bad news for vendors, who could find selling conditions become more challenging as advertised stock levels rise,” he said.

He also forecast that the volume sales transactions in the second half of this year and into 2023 will continue to trend lower as higher interest rates, a more cautious lending environment and a reduction in household confidence continue to affect demand.

Providing on-the-ground insight on market sentiment, Ms Jennison stated that while there are still a higher number of buyers in the market throughout the city, a large portion of them appear to be taking a raincheck on any property purchases.

“[A] large portion of the buyers appear to be fearful and are taking a stance to sit on the sidelines and observe the market activity, rather than participate in active bidding on properties.

“Other buyers are gearing up to take advantage of any opportunities that the current conditions might present,” she stated.

Auction markets

Domain’s latest auction showed that Brisbane’s clearance rate clocked in at 38.6 per cent at the end of the month, down by 7 per cent from June. The figures represent the biggest monthly fall in clearance rates across the capitals.

The month-on-month decline also marks the first time the city’s clearance rate fell below 40 per cent since July 2022, as the triple whammy of weaker buyer sentiment, rate hikes, and rising inflation continues to spread to the auction market.

Compared to the same period last year, Brisbane’s clearance rate is down by 22 per cent.

Domain noted that the significant annual drop is a result of unusually high clearance rates in July 2022 and aligns with rates normally seen in the Queensland capital, as it is not an auction-centric market.

Out of the 672 scheduled auctions in the city throughout the month, data showed that 11.5 per cent was sold prior, while 11.5 per cent were withdrawn from being on the block.

Aside from Adelaide, Brisbane was the only other capital city to record the lowest proportion of homes sold prior to auction day.

The figures indicated that sellers remain confident in the likelihood of a competitive auction in the city, with Domain highlighting that the last time Brisbane’s sold-prior rate was below 12 per cent was in September 2020.

Data also showed that unit clearance rates continue to outperform houses in Brisbane, as the city’s house and unit sectors tallied clearance rates of 37.7 per cent and 45.4 per cent, respectively, during the month.

According to Domain, the figures may indicate increasing investor interest or downsizers capturing equity growth in their houses.

On a monthly basis, clearance rates for houses are down by 6.7 per cent, while unit clearance rates fell by 9.1 per cent.

The median auction price for houses in Brisbane stood at $1,167,500 at the end of July, indicating a 5.2 per cent increase in the average house price tag month on month. Over the 12-month period to July, the figures are up by 19.1 per cent.

For units, the median auction price stood at $650,000, representing a 4.4 per cent decline on a monthly basis. Compared to July 2021, the figures are up by 18.2 per cent.

Domain’s chief of research and economics Dr Nicola Powell commented that rising interest rates “have further accelerated downward pressure on prices, affecting buyers’ borrowing power and adding further strain to mortgage affordability”.

“This is weighing on buyer sentiment and confidence and impacting clearance rates,” Dr Powell said.

Separate data from CoreLogic showed a more successful month for auctioneers in Brisbane, as 670 scheduled auctions in the city throughout the month delivered a final average clearance rate of 42.5 per cent.

If you want to be in the loop about what’s happening across auction markets in the country, follow our weekly updates in our News section.

Vacancy rates

Brisbane’s rental market did not offer a reprieve to tenants in July, as vacancy rates in the city continued to be at what experts consider to be “crisis levels”.

Domain’s data showed that the city’s vacancy rate stood at a record low of 0.6 per cent in July, unchanged from the previous month.

In another sign that tenants looking for an unoccupied space in Brisbane are doing it tough, the number of available rental properties in the Queensland capital stood at a meagre 1,495 at the end of July.

While the figures indicate a 4.3 per cent increase in supply over the month, available rental listings are down by a staggering 49.4 per cent compared to the same period last year.

The areas with the highest vacancy rates across the city were were Jimboomba (1.6 per cent), Kenmore – Brookfield – Moggill (1.3 per cent), Brisbane inner (1.2 per cent), Sunnybank (1.1 per cent), and Centenary (1 per cent).

Meanwhile, the areas with the lowest vacancy rates were Strathpine (0.1 per cent), North Lakes (0.2 per cent), Gold Coast – North (0.3 per cent), Caboolture Hinterland (0.3 per cent), and Chermside (0.3 per cent).

Dr Powell said vacancy rates had been steadily falling for the past 12 months, with conditions highly in favour of landlords across every capital city.

“[A] shortage in rental supply [is] driving up asking rents and further escalating competition between tenants,” she noted.

But she said that while times are tough for tenants, there are indications that vacancies will be easier to come by in the coming months.

“While vacancy rates have fallen in July, we could see rental conditions stabilise in the coming months with the rise of investment activity helping to alleviate tightening conditions,” she said.

Meanwhile, data from SQM Research showed that Brisbane’s vacancy rate ticked up to 0.7 per cent after hitting a record low of 0.6 per cent in June.

The recent monthly figures indicated that the city’s vacancy rate has shrunk from a more manageable 1.2 per cent recorded in the same period last year.

While rental conditions seem to be easing in the city due to the slight uptick in rental listings on a monthly basis, SQM Research managing director Louis Christopher forecasts vacancies will continue to decline in the coming months as immigration puts strain on the city’s rental market supply.

“[We] have evidence that the rise in overseas arrivals is starting to put some additional demand pressure in certain pockets of the rental market. We will wait to see if the increased immigration demand creates pressure elsewhere,” he stated.

However, experts are calling attention to how the recent changes to Queensland’s land tax laws could lead to an investor exodus and, ultimately, cause the region’s rental market crisis to deepen.

Under the state’s new land taxation system — set to take effect on 1 January 2023 — taxable land in Queensland and other relevant interstate lands will be used to calculate the relevant tax bracket that a property owner falls into.

Echoing the statement by the Real Estate Institute of Queensland (REIQ), which has rebuked the new tax law in December 2021 as “a slap in the face”, Ms Jennison stated: “This is yet another disincentive for private investors, who are the main supply driver of rental accommodation for tenants.”

She warned that such legislative changes could have further long-term impacts on the supply of rental properties, which will ultimately result in rising costs for tenants in the medium to long term.

Rental market

The record-low vacancy rates are driving up Brisbane’s rental prices, with more upward pressure predicted in the months ahead.

CoreLogic data showed that house rents in the city rose by 13.6 per cent over the last 12 months to July, while unit rents also rose by 9.7 per cent during the same period.

“We have observed rents in some areas jump more than 20 per cent in the last 12 months alone, and there is no slowdown in sight,” Ms Jennison stated.

Currently, gross yields in Brisbane stand at 3.4 per cent for houses and 4.7 per cent for units — with the combined yields at 3.6 per cent.

Meanwhile, SQM Research’s data showed house rents were unchanged over July, while unit rents fell by 1.3 per cent over the same period.

Despite the monthly falls, house and unit rents are up by 20.3 per cent and 14.8 per cent, respectively, on an annual basis. This brought the average weekly rent for houses to $620.40, while the median weekly price for units stood at $453.60.

Outlook

Whilst the majority of markets around Australia are now shifting into a different stage of the property cycle, local experts believe that Brisbane has “favourable advantages” over other major cities in terms of the future outlook.

“Firstly, Brisbane has a relative affordability advantage, which has been the case for many years. Despite the gap narrowing over the most recent growth cycle, there remains a significant affordability advantage for property buyers in Brisbane in the housing sector as well as the unit sector of the market.

“This places Brisbane in a better position to ride out the uncertainty in the months ahead,” Ms Jennison stated.

But the conversation surrounding interest rate hikes — which are predicted to drag down national property prices by 15 per cent to 20 per cent across 2022 and 2023 — has also taken an interesting turn in recent weeks.

Some experts are now focusing on when the RBA may begin unwinding its monetary policy and start cutting rates again later next year, which would help the market settle at its bottom sooner.

“When interest rates start to stabilise, or potentially reduce next year, this could be the cue for housing values to find a floor,” Mr Lawless stated.

Commonwealth Bank economists are tipping a cut in the cash rate by the central bank from an official cash rate peak of 2.6 per cent starting in late 2023, and Westpac and ANZ expect a peak rate above 3 per cent with cuts by mid-2024.

“With a sudden associated slowdown in economic growth, we are now anticipating rate cuts in 2024 to restore the cash rate to the RBA’s neutral zone (cuts of 100 bps),” Westpac chief economist Bill Evans said.

And as the market gears up for the spring selling season, experts predict that total listings on the market may finally return to average levels and will serve as a true test of buyer demand levels in the market.

“By late spring or early summer, we could be seeing advertised stock levels trend higher than normal. Vendors are likely to be more competitive across a smaller pool of active buyers, which would drive clearance rates lower across auction markets, and could result in longer selling times and larger discounting rates for private treaty sales,” Mr Lawless said.

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