Perth prices up nearly 28% over the last 18 months
Perth’s property price growth rolled on last week and appears to be more consistent with each week that passes. Perth recorded a 0.44% increase last week, the same as the week before, and both were very close to the 0.46% weekly average this year. The identical weekly price growth means Perth’s median prices increased by more than $3,200 again last week, and the median price is still tracking towards $843,000 by the end of the year.
The following chart demonstrates that weekly price growth (solid blue bars) has shown less variance from the average (orange line) since April. The limited variance since April indicates that although the market is radically undersupplied, it is also becoming less volatile, suggesting buyers and sellers are coming to terms with the rate of price increases. However, this acceptance of market conditions does not mean buyers are satisfied with the current status quo.
The consistency in the weekly price growth is also replicated in the next chart. The price growth since the beginning of 2024 (blue line) almost looks like it was drawn with a ruler. The chart reveals that prices are up more than 11% so far, and if the trend holds, prices will be up 25% by the end of the year.
Looking back to the beginning of 2023, we can see in the following chart that prices have increased by nearly 28%, representing remarkable growth. However, what is more interesting is comparing the growth (blue lines) in the charts above and below with the red trend lines. We can see in the chart above that the growth is sitting almost precisely on the trend, while in the chart below, the growth does not closely follow the trend; rather, the growth is curving upwards. Reading these two charts together indicates that while price increases have been consistent in 2024, the rate at which prices increase this year is much faster than in 2023.
The rapid increase in property prices has focused attention on housing affordability. So, given that prices have increased significantly over the past 20 years, particularly in Perth over the past 18 months, we compared Perth’s housing affordability between 2004 and 2024. The following table reveals properties that are significantly less affordable than 20 years ago, but maybe not as much as feared. In housing economic theory, a rough guide to affordability is that it is unaffordable if more than 30% of income is spent on housing. In the table below, we can see that the percentage of income spent on housing in blue has increased from 26% to 35%, so we could theoretically say that over the past 20 years, housing has shifted from affordable to unaffordable. The annual income to house price ratio in purple has also increased by nearly 50%, from 4.12 to 5.90 years. These two pieces of data tell us that house prices are rising much faster than incomes.
Now, before this causes too much concern and we get into a debate about the difficulty for people getting into homeownership versus the generation of wealth (residential property in Australia is $10.7 trillion, yes, trillion), the ABS released figures showing the mean price of residential dwellings in Australia is $959,300. This figure makes Perth relatively very affordable. Furthermore, according to an article on the ABC, residents of Sydney with a median household income must spend 60% of their income on housing if they want to purchase a median-priced dwelling. The following is the link to the article.
Suddenly, 35% don’t feel so bad.
P.S. For those interested, a couple of points regarding the table above: the data was gathered from numerous sources. The median house price in 2024 is lower than the current price because it had to align with the correct date in 2004. The WA average household income is gross (before tax), which is standard for economic analysis. Still, I have used approximate numbers for simplicity. The interest rate for both years was estimated by adding 2% to the Reserve Bank of Australia cash rate. The loan is assumed to be a 30-year variable loan, and the loan amount is the median house price minus the 20% deposit. The monthly repayment was calculated using the Excel PMT function and rounded for simplicity.
Reproduced with permission from:
Ryan Brierty,
in house economist from Michael Keil @Â michaelkeil.com
