Perth at DuskSo far this year, Perth has earned the title of “flattest housing market in Australia”. Despite a small rally in March, the residential housing market in Perth has fallen flat again.

CoreLogic’s home value index has showed that Perth has sustained a 1% increase in housing values across the month of March. This is a 4.7% decrease based on last years figures.

Therefore, the median dwelling price dropped from $477,000 in February, to $475,000.

These figures establish Perth as the worst performing capital city of the past year. This is of significant contrast to prosperous cities such as Sydney, Melbourne, Canberra and Hobart, which have all recorded major periods of growth over the past year.

Recovery or slump?

The minute improvement of housing prices in March, comes as a result of the property price slump in February, and a marginal increase in January. These changes prompted the market to pick up as buyers feared a price increase.

The hopes of a new year recover however, were dashed when unit prices dipped 0.7%, despite a March house price improvement of 1.1%.

Corelogic data estimates that Perth has showed the lowest annual change in its dwelling values for the past 10 years. Perth only experienced price growth of 0.3%, when compared to cities such as Melbourne – which recorded a 7.6% increase over the course of a decade.

Four out of eight of Australia’s capital cities displayed annual dwelling price growth over 10%. Despite this, Perth and Darwin continued to grow on an upward trend, but at a lower rate over the course of the decade.

According to Tim Lawless at CoreLogic, their data illustrates that conditions remain diverse in the capital city markets on a yearly basis. He concedes that dwelling prices in Perth fell by 4.7%, and by 4.4% in Darwin. This is likely due to people not migrating to these areas.

The impact of mortgage rates

The Australian Prudential Regulation Authority (APRA) imposed restrictions on interest-only loans recently. This is expected to have an impact on all Australian markets.

With recent dampening policy announcements from APRA, investment is likely to slow down, causing lending conditions to tighten. Those investing with small deposits or interest-only loans will be hit the hardest here; making it much harder to get into property investment.

Higher mortgage rates coming from major banks will contribute towards a cooling down of hot property markets, such as those in Sydney and Melbourne.

Tighter lending national lending conditions are expected to negatively impact on activity in Perth.

Other market factors

Organic sources of growth are becoming more restrained. For example, low rental yields would imply that property values are out of line with rents. Constraints of affordability are preventing buyers here from getting involved in the market.

There has been a record level supply in terms of apartments. This is likely to act as a buffer on capital gains in areas where supply is high. Essentially putting a halt to price growth.

The Housing Industry Association of Western Australia suggests that the restrictions placed by APRA have allowed a measured approach to lending conditions.

The housing activity in WA is in a different cycle compared to many of the eastern states, with prices in Perth easing. This is concurrent with the significant rise in housing prices in Sydney and Melbourne.

Rental vacancies and rental prices have moved in a different direction, and at varying pace. This is different for both capital and regional areas.