Property price declines are slowing down in Brisbane
As we start 2023, like the beginning of any new year, we often reflect back on the year that was and plan for what the future will be. 2022 was a year like no other. In reviewing data for our Brisbane property market update December 2022, we saw that Brisbane experienced rapid changes in from January right through to December. The market changed from a fast-moving, rapidly growing market at the beginning of the year, to one towards the end of the year where properties were, in general, taking longer to sell and median values were declining month-to-month.
At the beginning of 2022 commentators were predicting strong price gains for Brisbane throughout the year. Then Brisbane experienced another huge Flood event in February 2022 which was the first sign of any market change since the post Covid-19 boom. Then the Federal election caused some buyers to pause and wait.
We then saw global supply chains tightening rapidly and inflation escalating quickly. This meant the RBA reacted by increasing interest rates well before they had originally anticipated.
Over a period of 8 months throughout 2022, we experienced the fastest monetary tightening cycle since 1994, with rate increases totaling 300 basis points. This, combined with the not-surprising negative mass media response, resulted in a dive in consumer confidence. Ultimately this changed the trajectory of many property markets throughout Australia.
What is interesting is that the fundamentals for each specific property market over this time, and still today, remain somewhat different. Australia is not one property market and as we have pointed out previously, Brisbane is also not one single property market. The fact is that each region is made up of many smaller micro markets that each responds to the changing macro conditions in very different ways.
Yet so many people rely on large macro data trends, then apply those trends equally across the board. This is a mistake that we have seen many less educated buyers make. Those of us who have been invested in property for decades know and understand how to interpret the data trends and overlay those with the qualitative analysis based on our on-the-ground experience as well.
The Fundamentals in Brisbane
Despite what you may have read or heard through other sources, the fact is that in November 2022 there were a total of 21,049 properties for sale across Greater Brisbane according to SQM Research. If we compare these figures to November 2019, prior to the pandemic, Greater Brisbane had a total of 33,205 properties for sale. This is a DECLINE of 36%!!!
According to SQM Research, on 1st December 2022, Brisbane had a total of 5,510 properties available for rent. Three years earlier on the same date in December 2019 there were a total of 10,554 properties available for rent.
This represents a DECLINE of available rental properties across the last 3 years of more than 50%!
At the same time, Brisbane has experienced very strong population growth as discussed last month. Sales volumes are still above the five-year average for Brisbane, despite being down -11.4% year on year according to CoreLogic. This is different to cities such as Sydney and Hobart where Sales Volumes have now dropped BELOW the five- year average.
This means more people are still transacting in property sales than the long-term average, but fewer properties are available for sale or for rent in Brisbane. These are very strong fundamental drivers for maintaining the balance between supply and demand which is a concept we discuss regularly in our monthly updates.
Additionally, the current national unemployment rate is 3.4% which is the best it has been since the 1970’s. Queensland has seen a huge improvement in job opportunities with jobs growth in September 2022 at 4%. This is well above the 20-year average of 2.4%. These strong employment figures will help to contain mortgage stress levels for a lot of households.
Nationally, wage growth saw an increase of 1.2% in the September quarter to the highest level in more than 10 years. Households, in general, have a very strong equity position with house prices increasing in the majority of locations across the country over the last 3 years.
Despite eight official cash rate rises throughout 2022, several banks recently confirmed that their customer mortgage arrears remained at record lows throughout 2022. We will watch with caution as it has been reported that 35% of outstanding housing credit is on fixed terms at the moment. Also, approximately two-thirds of these loans are set to expire in 2023.
Borrowers with fixed loans that are expiring this year will be refinancing to variable mortgage rates that are likely to be 3 to 4 percentage points above their original rate. Not all borrowers will be impacted in the same way, but this might stretch some people. We expect those on lower incomes who are stretched to their capacity to buy might struggle. This is something to watch as 2023 unfolds.
Finally, let’s not forget the tens of billions of dollars in infrastructure spending by private companies as well as the Government, building a better Brisbane that will be ready to host the 2032 Olympic Games.
There is a lot to get excited about for the future, especially in Brisbane. The question to ask is why is there such a lack of confidence right now?
What might cause consumer confidence to Recover Faster?
Decisions by the RBA and the way in which the media will report any changes in credit policy will likely play a big role in the levels of consumer confidence throughout 2023. Now, borrowers are still being assessed on repayments that are 3% above the actual interest rate offered at the time of applying for a loan.
Whilst this policy made perfect sense when interest rates were at record lows, there are now several commentators calling for an easing of the assessment rate. This will ultimately free up additional borrowing capacity for people looking to apply for a loan. This would mean easier access to finance for people looking to refinance or those who will be purchasing a home or an investment property in the future.
Time will tell if there is any change to these assessment rates, but we eagerly await any updates throughout 2023.
Dwelling Prices in Brisbane
Throughout December, the median value of dwellings in Brisbane declined -1.5% according to CoreLogic. This is a slowdown in the rate of decline compared to the last two months, perhaps indicating that the largest median value declines are now behind us. The annual change for Brisbane Dwellings is now down -1.1%. The median value of a dwelling in Brisbane is now $707,658.
The PropTrack data for December reported a slower level of decline in the median price of Brisbane dwellings of only -0.18% and places the median at $716,000 for all dwellings in Brisbane. This data suggests that the annual change in Brisbane has been +2.18%.
Brisbane House Prices
According to CoreLogic, the median House value in Brisbane declined -1.7% in December. This is lower than the last two months – again confirming that the worst might now be behind us. The annual change for House values in Brisbane is -2.5%. The Median value of a house in Greater Brisbane is now $786,198.
Data from PropTrack shows that Brisbane House Prices declined only slightly for the month of December with -0.19% change. This data indicates that the annual growth for Brisbane houses is still positive at 1.6%.
Brisbane Units Prices
During December, the median value for units across Greater Brisbane declined -0.4% as reported by CoreLogic. This is an improvement over the last two months when unit values declined -0.9% and -0.5% respectively.
Over the last 12 months, Brisbane Units have grown 6.7%. This is evidence of the fact that the unit market in Brisbane has been far more resilient than the housing market over recent months. The median value for a unit in Brisbane is now $492,059.
PropTrack data for Brisbane Units for December shows a change in the median value of -0.08% and the annual change for units as reported is 6.13%, which is similar to the data reported by CoreLogic.
Brisbane Rental Market
Vacancy Rates in Brisbane, according to SQM Research, remained at a very low rate of 0.8% in December 2022. This rate has remained unchanged since September 2022, reflecting the consistency in relation to the tight supply of rental properties throughout the city.
House Rents appear to be stabilising in Brisbane, although growth in rents still tops the nation for capital city locations. Last month we saw the annual change in rent for houses in Brisbane at 13.4% and this month it has eased slightly to 13% annual growth.
Unit rents in Brisbane still appear to be on the way up with annual growth increasing from 14.3% last month to 15% this month. Brisbane has experienced the second-highest growth in unit rents across the capital cities, just slightly behind Sydney which sits at 15.5% growth in this segment of the market.
The high rental income growth in Brisbane combined with the easing of median property values, means gross yields for investors continue to improve across the city.
We expect 2023 to be a normal year for the Brisbane Property Market. We do not expect prices to drop significantly at this point in time. We also do not expect prices to rise rapidly in the months ahead. Whilst the fundamentals remain strong, it may take some time for consumer confidence to return. This is likely to be once interest rates find their new level and people have confidence in their outgoing expenses.
However, we also expect some segments of the market to outperform others. Quality homes in sought-after locations close to the Brisbane CBD remain popular. Those that appeal to the owner occupier, in good school catchment zones with family-friendly floorplans, and in desirable neighbourhoods have not actually lost their popularity despite broader market conditions over recent months. We have consistently represented buyers who have been fed up with missing out due to the high levels of competition for these types of properties in Brisbane. We expect with high levels of interstate migration continuing, that this segment of the market will continue to perform well throughout 2023.
New builds in established suburbs close to the CBD also remain very popular with strong demand from buyers wanting to move in with nothing more to do. Due to the demolition control measures which are part of the Brisbane City planning scheme, new builds with modern floorplans are usually scarce in areas dominated by character Queenslander homes. This makes them very popular with buyers wanting the perks of a modern home in some of the most desirable neighbourhoods throughout the city.