State Final Demand
This week sales increased by 11% to 916, fuelled by a 19% increase in unit sales and a 48% increase in vacant land sales. The graph below shows that over the last 12 months sales have averaged 642 per week (red line) and we can see that since the 14th of June this year, sales have been above average.
Listings again this week remained relatively flat with a 1% fall to 10,642. Rental listings continued their downward trend falling by 2% again to 3,132. Rental listings have fallen 12% over the last month to 3,132 and are now 53% lower than this time last year. The next milestone we will be watching for is rental listings below 3,000.
Over the past 5 years Perth investors watched their property values and rents fall as vacancy rates hit around 7.5% in the second half of 2016 due to the massive negative interstate migration. So it was no surprise that investors left the market. With vacancy rates now around 1.6% and still falling, rents are starting to increase and the average days to lease are falling. This should start to appeal to investors enticing them back into the market. The following graphs from Corelogic show the how Perth’s rents have been trending positively upwards over the last 5 years and are now moving in the opposite direction to other markets.
There are two other factors that should encourage investors back. Firstly Perth’s property prices are the most affordable in the country according to the Real Estate Institute of Australia. West Australians on average need 24% of their income to meet their mortgage repayments compared to 42% for NSW.
Secondly, investors do not have a lot of options to park their money. Interest from term deposits does not even cover inflation and bonds aren’t much better. As a result investors have been turning to the stock market, but with reduced company profits due to the coronavirus and inflated prices due to the increased demand for shares, the Perth property market should start to appeal as an alternative to investors.
Last week we looked at the 7.6% decline in national GDP for the June quarter. The table below shows the June quarter State Final Demand (SFD) and household consumption for each state. SFD is the states equivalent to national GDP and it’s good to see WA below the national -7.6%.
It is easy to see the impact household consumption has on SFD. What is interesting is the lack of consumer confidence has seen the household saving rate increase from 6% to 19.8% over the June quarter. The increased saving rate and decreased consumption is the major reason for negative economic growth across the nation. However as we reported in mid-August, Westpac’s August consumer confidence survey showed WA with the highest level of consumer confidence nationally. This should translate into higher consumption and SFD in WA’s September quarter results.