Brisbane Property Market Update May 2022
Whilst the national news headlines are saying that National Property Prices are falling, we all know that there are markets within markets. In Sydney, Canberra and Melbourne property prices, according to median values, are falling – but this is not the case in Brisbane.
We are now seeing month-on-month price growth momentum in Brisbane start to slow, and this is something we have been expecting for some time. With the pace of growth experienced throughout the later months of 2021 across Brisbane, we knew this was simply not sustainable.
This does not mean we are finding bargains to buy. The growth rate according to median values is still higher in Brisbane as at the end of May, compared to the end of April. In fact, according to the latest Hedonic Home Value Index Data Brisbane experienced 0.8% price growth across all dwellings throughout the month of May compared to 1.7% price growth throughout April. The median value for a dwelling in Brisbane is now $779,895 which is $9.087 more than last month.
The quarterly growth is now 4.6% across Greater Brisbane for all Dwellings, declining from quarterly growth of 5.7% last month. This further supports the fact that the Brisbane market is cooling, and instead of rapid price growth, the city is now moving at a steadier pace.
We are starting to see a shift in the demand for some property types across Brisbane. For example, properties that need a lot of renovation or improvement work are becoming less popular. Perhaps this is due to the difficulties in securing a builder, or other tradespeople, to complete improvement works. Or perhaps it is due to the uncertainty around cost escalations associated with the construction industry as a whole. There may be some good buying opportunities for these types of properties in the months ahead.
Additionally, we are also observing more buyers inspecting quality townhouses and units in well-positioned locations, compared to a few months ago. This is perhaps a sign of shifting demand as more buyers are priced out of houses, so instead of compromising on the location to buy, they are looking to compromise on the property type.
The data now supports this anecdotal evidence as well. Over the last month, the median value for Brisbane Houses has grown by 0.8% whereas the median for Brisbane units has increased 1.2%. This is the first month since September 2020 that Brisbane Units have increased in value at a faster pace than Brisbane Houses on a monthly basis.
The median value for a house in Greater Brisbane is now $885,633 and for a Unit in Brisbane, this is a lot more affordable, with a median value of just $498,521. The average unit in Brisbane is worth about 56% of the value of an average house. In Sydney, this difference is 59% and in Melbourne, 63%. We expect that this will change as the unit market maintains growth momentum in the months ahead, whilst the rate of growth in the housing market throughout Brisbane slows.
The quarterly growth is still higher in the housing market throughout the city, being 4.7%, compared to the quarterly growth in the unit market which has been 4.3%. We have seen a reversal of this trend in May, and it is an area to watch in the future. The strength in the housing market over the last 12 months is evident. When we look at the annual growth figures for both product types Brisbane has experienced 30.2% growth in housing and just 15.2% growth in the unit sector.
Brisbane Property Market Update 2022
The reason we are now seeing some markets around Australia perform differently from others relates to property market fundamentals. News commentators would have you believe that rising interest rates and higher levels of inflation, for example, will impact all markets in the same way. But this is simply not true.
Some capital city housing markets are now in decline due to a combination of factors that have led to higher supply and lower demand. When supply outstrips demand, prices fall. The opposite is true as well. When supply is low and demand is high, prices rise.
The larger markets of Sydney and Melbourne now have inventory levels that are higher than 12 months ago and also higher than the five-year average. In Sydney, advertised listings are 5.1% higher than 12 months ago and 1.5% above the five-year average, and in Melbourne listings are up 1.3% year on year and 8.1% above the five-year average.
This is NOT the case in Brisbane. In fact, in Brisbane, we are seeing the opposite.
Total advertised stock levels in Brisbane according to CoreLogic are 38.2% BELOW the five-year average. This is a fundamental difference between the Brisbane property market where prices are still growing, and other capital city markets, where prices are now in decline.
When we see listing volumes increase, at the same time as buyer demand dampens, it usually means that buyers start to control the market. They have more properties to choose from and therefore there is less fear of missing out (FOMO) and less urgency. This usually correlates with falling prices.
In Brisbane, we have a LOW SUPPLY environment. Whilst our market has the same headwinds as other markets around Australia in terms of rising interest rates and higher inflationary pressures, we also have HIGHER demand.
The Brisbane market still has the unique advantage of very strong levels of interstate migration and relative affordability. Even with the rapid price increases over the last 12-18 months in Brisbane, compared to median values in other capital cities, our market is attractive for buyers looking to get more bang for their buck.
We have seen a rapid increase in the number of property investors looking to take advantage of the opportunities that investing in Brisbane can deliver. Not only are investors taking a long-term view to capitalise on the fact that our city will be hosting the 2032 Olympic Games, but they are also looking at the yield opportunity as well. With Vacancy Rates at record lows, rents continue to rise and this creates a unique opportunity for investors to hedge against inflation.
City-wide vacancy rates according to SQM Research in Brisbane are at 0.7%. There is a rental crisis in our city. Rents have already increased 12.8% in the housing market in Brisbane over the last year which is the highest level of rental price growth across all capital city markets around Australia. In the unit market, rents have increased 8.1% in Brisbane over the last 12 months, and there is no slow down in rental price growth in sight.
As we transition into a different phase of the property cycle in Brisbane, we expect to see some locations and some property types perform better than others. Changing market conditions like rising interest rates impact some people more than others. and we believe that some areas may be at risk. These areas include locations where investors have been chasing high yields in suburbs located in the outermost parts of the Greater Brisbane region. In some of these locations, the people who are the dominant population group are already at the limits of affordability in terms of the amount they pay toward rent from their incomes. This will cap (to some extent) the capacity for investors to increase rents to cover the increased interest expense. In the absence of capital growth, we may see some investors want to sell – but the demand from buyers will be dampened also by affordability constraints.
We always suggest that people understand the market they are buying into as well as the demographic make-up of the people who live in a particular location. As an owner-occupier, it is most likely that discretionary spending is cut to allow for increased mortgage costs. So the distribution of owner-occupiers and investors does matter. If you buy into a location dominated by investors … some of those investors might start to feel the pinch as we move into a more normal interest rate environment.
Time will tell.
Brisbane has been performing well across most segments of the market … but it is likely that we will start to see markets within markets once again.