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WA housing prices to fall as oversupply hits

Tuesday, 21 Mar 2017 14:00:15 | Emily Piesse

WA's housing market is set to fall. (ABC News: Billy Cooper)

Investors in Western Australia's housing market are being warned to expect further price falls, with an oversupply of houses and apartments set to worsen.

Key points:

  • Housing oversupply will see prices fall in WA, a new report suggests
  • Market expected to reach bottom half of cycle by second half of 2018
  • Population growth slowdown is a contributing factor

Figures from BIS Oxford Economics show WA will have an extra 14,600 dwellings — relative to underlying demand — by the middle of the year, and an extra 17,500 dwellings by June 2018.

Just two years ago WA had an estimated undersupply of about 11,000 dwellings.

BIS Oxford Economics managing director Robert Mellor said he expected the state's housing market to reach the bottom of its current cycle in the second half of 2018.

"[WA has] gone from an undersupplied market three or four years ago to a massive drop-off in population growth, from about 3.5 per cent to around 1.3 per cent, and in that environment your demand for housing has plummeted," Mr Mellor told the ABC.

"The interesting thing with that oversupply is it's mainly in housing, whereas obviously in the rest of the country the oversupply is in high-density apartments."

In Perth, the median house price has fallen about 8 per cent in the past two years, with further falls of up to 2 per cent expected over the next year, Mr Mellor said.

"You're unlikely to see prices above the inflation rate of say 2 per cent in the next four or five years," he said.

"I think it'll get to the bottom of the market within the next two years, but I don't expect a strong recovery because population growth's not about to return, there's not another mining boom around the corner."

External Link: The number of residential dwellings forecast to commence in next year.

Perth warning for the nation

Mr Mellor said Perth's property market showed price corrections could occur even when interest rates were low, and investors in other capital city markets — particularly Sydney and Melbourne — should take note.

"For those people who don't think prices ever decline, you've only got to look at the dramatic change that happened in Perth in terms of population growth and how this market's gone from an undersupply to a significant oversupply," he said.

But Mr Mellor said while the rapid turnaround in WA's economy and property market was one of the biggest he had witnessed in 30 years, prices had not collapsed.

"Ten per cent is not a pleasant decline, if you're an owner of property and an investor particularly," he said.

"Perth's a great example for the rest of the country to see that corrections can happen, but it doesn't mean we're about to see the bubble absolutely burst."

Mr Mellor said he expected WA's housing market to remain relatively soft to 2021, with a modest upturn in the following years.

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