Is this the start of big price falls in Brisbane?

During times of change and uncertainty, such as the current rising interest rate cycle, buyers tend to take a “wait-and-see approach”. Sellers also often sit out of the market waiting to see signs of improved confidence, unless there is a real motivation to sell.

We have been seeing some great buying opportunities recently whereby sellers have been motivated, and therefore they have been willing to meet the market. Some of these vendors had already bought elsewhere, so they needed to sell. Others were deceased estates and “quiet” sales, which included divorcees. When there is a motivated vendor, they are usually prepared to meet the market. When buyers are nervous, they tend to offer less, and because of this, there have been opportunities to buy quality properties for a good price.

However, we have also seen a lot of properties NOT sell throughout Brisbane. The gap between buyers and sellers does not seem to meet, and when there is no real motivation to sell, the days on market simply trend higher. These properties do not become part of the data that records property price trends.

Demand for properties that have impacts such as flood or overland flow, or properties on main roads (for example) has definitely softened. Sales agents are finding these properties a little more difficult to sell as buyers have become pickier and choosier in relation to what they want to buy, or they are pricing in a value deduction for the impacts. During 2021, these types of properties were just as popular as everything else — there was a buyer for everything. But this is no longer the case. 

Brisbane dwelling values declined -1.8 per cent throughout August, according to the CoreLogic Hedonic Home Value Index. The median value for all dwellings across Greater Brisbane is now $762,284, which is $19,556 LESS than one month ago.

Source:  CoreLogic 

The rate of decline was larger in the housing sector, with falls in the median value of -2.1 percent throughout August. The median value for a house in all of Greater Brisbane is now $864,149, which is $20,187 LESS than last month.

Source: CoreLogic

Of course, this does NOT mean that a house purchased four weeks ago is suddenly worth 2.1 per cent less than what was paid. A lot of people assume this to be the case. Every property has its own level of demand and therefore reaches its own level of value based on previous comparable sales and also the quality of what buyers are wanting. We are still finding that quality houses that are well located, in desirable neighbourhoods, are still highly sought after and achieving strong prices. There appears to be a shift towards quality once more and demand is still strong for high-quality homes.

Units in Brisbane have fallen very slightly over the month with a reduction of -0.2 per cent in the median value, which now sits at $501,396. This is $3,124 lower than last month.

Source: CoreLogic

Rental rates remain strong in Brisbane due to the low number of rental properties available, evidenced by vacancy rates that continue to hover at record lows. In July, there were just 2,474 properties for rent throughout Brisbane, with a vacancy rate of just 0.7 per cent recorded for the month.

The vacancy rate for each region within Greater Brisbane is populated below.

Source: SQM Research

With very limited supply of rental accommodation, it is not a surprise that rents are still rising in Brisbane. The annual change in housing rents increased 14.1 per cent, whereas for units, the annual change was 10.7 per cent. Brisbane still leads the capital cities throughout Australia for the largest growth in rents changed by landlords to tenants over the last 12 months. 

Source: CoreLogic

Whilst this provides some relief for landlords who are dealing with rising interest rates, it is not good news for tenants. There are so many instances where properties are still receiving rental applications prior to an inspection taking place, and in most cases where a rental property is appropriately priced, there are multiple applications received from tenants, which gives a landlord choice.

Due to the slowdown in property prices and the continued growth in rents, gross investment yields continue to recover. The median gross yield for Brisbane houses has increased from 3.4 per cent last month to 3.6 per cent now. And for units, the median gross rental yield has increased from 4.7 per cent last month to 4.8 per cent at the end of August. These higher yields are starting to offset the increasing holding costs for investors holding assets throughout Greater Brisbane.

Whilst interest rates continue to rise, eroding the borrowing capacity of property buyers, and inflation continues to put pressure on household expenses, it is reasonable to expect the demand for property to remain suppressed. It is also reasonable to expect that once inflation is under control, interest rates will find their new point and buyers will regain their confidence. At that time, we expect that the buyers who have been “sitting on the sidelines” will re-enter the market and the depth of buyers pay tip us back into a seller’s market.

Of course, we may expect that days on market will trend higher if sellers and buyers can’t find that place where each party sees value, which may cause an increase in older listings in the months ahead. If this is coupled with any noticeable increase in new listings, it will give buyers more choice, which may tip in favour of the buyers.

We know there is no way to predict the future with certainty, despite the fact that so many commentators are doing just that. We prefer to focus on the fundamentals for Brisbane.

We have a tight labour market, a strong local economy and income growth is gathering momentum. There is unlikely to be a material increase in distressed sales under these circumstances. Instead, we take the view that property is an asset class that warrants a long-term view.

If you get the opportunity to choose a quality property with less competition in the current market, it makes sense to buy right now. Properties that become available for sale within the next few months will not be the same properties that become available for sale next year, and our focus is always on buying the right home, or the right asset for an investor, regardless of broader market conditions. Property is not something that is traded every six months, and therefore buying the right property is what is more important than trying to time market cycles because before you know it, the market might turn again, and then it might just be a market frenzy again.

Tags:

• Latest
• Australia property market news roundup

Share