Perth’s residential property market outlook: FAQ with Damian Collins


With interest rates returning to pre-COVID norms and inflation levels recording a recent increase, you may be wondering what this means for Australia’s property markets in the months ahead.

We caught up with our Managing Director and REIWA President, Damian Collins, to discuss how these shifts will impact Australia’s residential property sector, and why the outlook for Perth’s residential market remains so positive despite the changes.

Here’s what he had to say…

Will rising interest rates impact property price growth?

Interest rate increases inevitably have a correlation to the property market. However, the extent of this impact will be influenced by various factors, including the affordability and debt levels within individual markets.

While interest rate rises will no doubt result in reduced household consumption, they will likely have a lesser impact on owners’ ability to meet mortgage repayments. This is because lenders have been assessing loans at a minimum 2.5% buffer above actual rates for some time – in part to account for these sorts of changes.

As an example, this means investors who have taken out a loan at an interest rate of 3% will have already been assessed at an increased “buffer” rate of 5.5%. Thanks to these buffers, most buyers will have the capability to absorb rate rises.

It’s also important to note that increasing rates won’t impact all markets equally. Rate rises will have a lesser impact on more affordable markets, where loan sizes tend to be smaller.

Which residential markets will be most impacted by these changes?

Rising mortgage interest rates typically have the largest impact on the most expensive markets.

In Australia’s case, this means markets like Sydney and Melbourne – where REIA figures show median house prices sit at $1.59 million and $1.22 million respectively – are likely to be most impacted by the changes.

In these markets, rates may not need to rise as significantly for spending to decrease, as many owners are already managing larger mortgage repayments.

How will interest rate movements impact Perth’s property market specifically?

Our research suggests that Perth’s residential property market will be least impacted by interest rate rises. In fact, there are a number of factors suggesting Perth remains well-positioned from a growth perspective despite these changes – the first being the market’s relative affordability.

As it stands, REIA data shows that Perth has the cheapest median house price in the country at $526,000 – one third of Sydney’s.

This not only means the market is more financially accessible to buyers, but households are also taking on lower average debt levels.

This is shown in the disparity in median price to income ratios between Perth and other major capital cities. In the March 2022 quarter, just 26.6% of household income was required to meet loan repayments on average in the WA market, compared to 46.5% and 38.0% in New South Wales and Victoria (REIA).

Both internally and externally, we’re seeing many Perth agents reporting interest from interstate investors, many of whom are realising the affordability and potential upside of Perth relative to their home markets.

The second factor supporting the stronger outlook for the Perth market is the strength of our domestic economy.

Historically, the housing market tends to be more impacted by significant rises in unemployment rates. However, as it stands, Perth has one of the lowest unemployment rates of all our major capital cities at 3.4% (ABS). This, combined with the strong performance of the state’s mining sector, means Perth is well placed to ride out rate rises, even if they increase more than expected.

What do you anticipate will happen from a demand and supply perspective in Perth?

From a supply perspective, we’re still seeing a significant housing shortage in Perth. In a balanced market, there would typically be around 12,000 – 13,000 properties listed for sale. However, for the week ending July 10th 2022, data from the Real Estate Institute of Western Australia showed this number sat at just 8,560.

The shortage is even more pronounced across the rental market, where the vacancy rate is currently at 1.1% (typically 3% in a balanced market).

With the building industry significantly under-resourced, there is limited scope for supply to catch up in the foreseeable future, which is going to put further pressure on price growth moving forwards.

In addition to limited supply levels, we’re also anticipating a rise in demand now that Perth’s borders are open. This will be driven by increased migration off the back of the 60,000 plus job opportunities on offer in WA.

Already, we are seeing the WA Premier and major companies embark on a national and international recruitment drive. I expect we will see solid population growth in the latter half of 2022 and early 2023 because of this, which will further underpin demand for housing.

What does this mean for Perth’s future growth outlook?

While there are inevitably challenges ahead for the Australian property market, I believe that Perth is the best-placed market to continue its current growth trend.

It’s the most affordable capital city in Australia, has one of the lowest unemployment rates, and is expected to benefit from rising demand as a result of increased migration.

Combined with the city’s limited supply levels, which are expected to remain below the long-term average for some time, these factors all contribute to a positive outlook for Perth’s market, even with the challenge of increased interest rates.

Momentum Wealth are a trusted team of property investment consultants based in Perth. Through our range of property advisory services, we have helped over 3,000 buyers.

For more information on Perth’s property market outlook, or our service offering, please contact our friendly team today.