We are now seeing that the month-on-month price growth momentum in Brisbane is starting to slow down, and this is something we have been waiting for for some time. With the pace of growth seen in the final months of 2021 in Brisbane, we knew it just wasn’t sustainable.
This does not mean that we find bargains to buy. The growth rate according to the median values is even higher in Brisbane at the end of May, compared to the end of April. In fact, according to the latest data from the Hedonic Home Value Index, Brisbane saw price growth of 0.8% across all dwellings throughout May, compared to price growth of 1. 7% in April. The median home value in Brisbane is now $779,895, up $9,087 from last month.
Quarterly growth is now 4.6% in Greater Brisbane for all dwellings, down from quarterly growth of 5.7% last month. This further confirms the fact that the Brisbane market is cooling and instead of rapidly growing prices, the city is now moving at a more steady pace.
We are starting to see a shift in demand for certain types of properties in Brisbane. For example, properties that need a lot of renovations or improvements become less popular. This may be due to the difficulties in locking in a builder or other craftsmen to complete the improvement work. Or maybe it’s due to the uncertainty surrounding cost increases associated with the construction industry as a whole. There could be good buying opportunities for these types of properties in the coming months.
Additionally, we are also seeing more buyers inspecting quality townhouses and units in well-located locations compared to a few months ago. This may be a sign of shifting demand as more and more buyers are no longer selling homes, so instead of compromising on buying location, they are looking to make compromise on the type of property.
Data now supports this anecdotal evidence as well. Over the past month, Brisbane’s median home value has increased by 0.8%, while Brisbane’s median unit value has increased by 1.2%. This is the first month since September 2020 that Brisbane units have increased in value at a faster rate than Brisbane homes on a monthly basis.
The median home value in Greater Brisbane is now $885,633 and for a unit in Brisbane it’s much more affordable, with a median value of just $498,521. The average unit in Brisbane is worth around 56% of the value of an average house. In Sydney, this difference is 59% and in Melbourne, 63%. We expect this to change as the housing market maintains its growth momentum in the months ahead, while the rate of housing market growth across Brisbane slows.
Quarterly growth is even higher in the citywide housing market, being 4.7%, compared to quarterly growth in the unit market which was 4.3%. We saw a reversal of this trend in May, and this is an area to watch going forward. The strength of the housing market over the past 12 months is evident. When we look at the annual growth figures for both product types, Brisbane saw growth of 30.2% in housing and just 15.2% in unit sector.
The reason we now see some markets around Australia behaving differently than others has to do with real estate market fundamentals. News commentators would have you believe that rising interest rates and higher levels of inflation, for example, will impact all markets equally. But that’s just not true.
Some capital city housing markets are currently in decline due to a combination of factors that have resulted in increased supply and reduced demand. When supply exceeds demand, prices fall. The reverse is also true. When supply is low and demand is high, prices rise.
The larger Sydney and Melbourne markets now have inventory levels higher than 12 months ago and also above the five-year average. In Sydney, advertised listings are 5.1% higher than 12 months ago and 1.5% higher than the five-year average, and in Melbourne, listings are up 1.3% year-on-year and 8.1% higher than the five-year average.
This is NOT the case in Brisbane. In fact, in Brisbane we see the opposite.
According to Corelogic, total reported inventory levels in Brisbane are 38.2% below the five-year average. This is a fundamental difference between the Brisbane property market, where prices continue to rise, and other capital markets, where prices are now falling.
When we see listing volumes increasing, at the same time buyer demand is decreasing, it usually means that buyers are starting to take control of the market. They have more properties to choose from and therefore there is less fear of missing out (FOMO) and less urgency. This usually corresponds to falling prices.
In Brisbane we have a LOW SUPPLY environment. While our market is experiencing 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 high levels of interested migration and a relatively affordable price. Even with the rapid price increases over the past 12-18 months in Brisbane, compared to median values in other capitals, our market is attractive to buyers looking to get more for their money.
We have seen a rapid increase in the number of property investors looking to take advantage of the opportunities an investment in Brisbane can offer. Not only are investors taking a long-term view to capitalize on the fact that our city will host the 2032 Olympics, but they are also looking at yield opportunities. With vacancy rates at record highs, rents continue to rise, creating a unique opportunity for investors to hedge against inflation.
Citywide, vacancy rates according to SQM Research in Brisbane are 0.7%. There is a rental crisis in our town. Rents have already risen by 12.8% in the Brisbane housing market over the past year, representing the highest level of rental price growth in any capital city market in Australia. In the housing market, rents have risen by 8.1% in Brisbane over the past 12 months, and no slowdown in rental price growth is in sight.
As we move into a different phase of the property cycle in Brisbane, we expect certain locations and property types to perform better than others. Changing market conditions, such as rising interest rates, affect some people more than others. and we think some areas may be at risk. These areas include locations where investors seek high returns in the suburbs located in the more remote parts of the Greater Brisbane area. In some of these places, the people who make up the dominant population group are already on the edge of affordability in terms of how much they pay for rent from their income. This will (to some extent) cap investors’ ability to raise rents to cover rising interest charges. In the absence of capital growth, some investors may want to sell, but buyer demand will also be held back by affordability constraints.
We always suggest that people understand the market they are buying from as well as the demographic makeup of the people who live in a particular location. As a homeowner, it is highly likely that discretionary spending will be reduced to account for rising mortgage costs. The distribution of owner-occupiers and investors therefore matters. If you’re buying in a place 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 us.
Brisbane has done well in most segments of the market…but it’s likely we’ll start to see markets within markets again.
Property refers to something tangible or intangible over which an individual or business has legal rights or ownership, such as houses, cars, stocks, or bond certificates.