West is best? What tumbling iron ore prices mean for the WA property boom
Kirsten Craze, Property Journalist
First published 12 March 2024, 04:10 PM
But the state's heavy reliance on resources - particularly iron ore - has raised concerns over whether many are jumping on the property wave without considering the lessons of the last mining downturn, which saw home prices trade sideways for most of the last decade.
Iron ore prices have slumped close to 20% so far this year, while a collapse in Nickel and Lithium prices have put thousands of jobs at risk across the mining state.
But experts say the fundamentals of the WA housing market remain strong, with no quick fix for a dire undersupply of homes across the state. So, is this time different?
PropTrack’s February Home Price Index revealed Perth has experienced annual dwelling growth of 16.32% while Sydney and Melbourne saw rises of 7.77% and 1.33% respectively during the same 12-month period.
Statewide, Western Australia has also had significant growth with PropTrack’s rest of state median up 9.65% annually.
A cautionary tale from the past
Digging into Western Australia’s property past, the state’s home prices and economy have historically been linked with the mining sector.
In 2019, ABS data reported that the highest rates of homeowner negative equity were in Western Australia, the Northern Territory and Queensland where large price falls coincided with those regions’ high exposure to mining activity. Almost 60% of loans in negative equity were in Western Australia and the Northern Territory.
The WA property market has had a tumultuous decade. Picture: Getty
A further fall in the iron ore price could be on the horizon according to industry insiders given a predicted drop in demand from China, the world’s biggest iron ore consumer. There are also fresh fears an iron ore glut could be around the corner as a new supply comes out of Africa.
The prices of nickel and lithium have also been on a downward trajectory, despite the hype around the critical minerals in the growing electric vehicle market.
PropTrack senior economist Angus Moore said Perth is more tied to mining specifically than many other parts of the country.
“But a broader message here is that local economic conditions matter and understanding the market and those conditions is really important before you look to invest anywhere,” Mr Moore said.
Mandurah, south of Perth, has recorded the strongest price growth over the past 12 months. Picture: Getty
The past can, but doesn’t always, predict the future according to local selling agent, Ben Keevers, who said the fundamentals look different this time around.
“You've got to look at the past and keep one eye on it to an extent. We've had a huge amount of growth in such a short period, and history shows us that can also come off fairly quickly,” he said.
“But there are certain suburbs and towns which are more affected than others. At this point, though, all the main indicators point in a pretty positive direction for this year and going forward.”
Accelerating but still affordable
Despite the spike in dwelling values, Perth remains the second cheapest Australian capital with a median of $651,000 - only behind Darwin at $481,000. Meanwhile, Sydney is home to the priciest median of $1.053 million according to PropTrack.
“Even with the pretty solid growth, WA is the most affordable state to buy a home in and by quite a reasonable margin,” Mr Moore said, in reference to the latest PropTrack Housing Affordability Index.
“The whole state looks quite attractive to buyers as a result. That's a big part of why we're seeing stronger demand there than we are in some other parts of the country.”
While it may be a smaller city far removed from the more populous east coast, Perth hasn’t always been seen as the cheap cousin.
“In the late 2000s into the early 2010s, WA was actually the least affordable state in Australia. The mining boom had a big impact on housing affordability, in a negative way,” Mr Moore said.
“Western Australia then had a pretty soft decade after the end of the mining investment boom. Over the subsequent decade, home prices were pretty sluggish and we saw prices even decline for much of the back half of the 20-teens.”
PropTrack data places Perth’s median dwelling price at $520,000 in mid 2014, but that slipped back down to $460,000 by the end of 2019.
Demand versus supply
While listing volumes have picked up nationally, in Perth the total number of properties listed for sale remains down more than 40% relative to the prior-decade average.
“There are just not a lot of homes for sale," Mr Moore said. "It's the lowest we've seen in a long time which is causing more competition and putting upward pressure on prices."
Ray White's Ben Keevers said Perth has plenty going for it besides low home prices.
“The lifestyle and climate are great and it’s a brilliant place to raise a family. You could be in a really lovely Perth suburb and get much more for your money than in any blue chip market over east,” he said.
Perth's relative affordability and supply shortage is driving the market higher, with freestanding family homes snapped up within days. Picture: realestate.com.au/buy
Commonwealth Bank’s latest Regional Movers Index noted that Perth and Brisbane were the only capitals continuing to attract net inflows over the 12 months to December 2023. Three of the five fastest-growing LGAs were located in regional Western Australia.
Mr Keevers added that while Perth’s prices are appealing to out-of-area buyers, locals are leading the charge in his patch.
“A lot of people thought growth would have come off by now, and with forecasted rate cuts later this year adding more fuel to the fire, they’re deciding to make their move now. Stock has been sitting around a third of what it typically is in a normal market, but demand has just not backed off,” he said.
East coast investors have also set their sights westward due to the more affordable price point, tight rental market and rising rents across Western Australia.
“It’s a challenging time for renters in Perth. We're seeing vacancy rates sitting below 1% and they’ve been sitting around that mark since 2021,” Mr Moore said.
PropTrack data puts the average cost of renting a house in Perth at $620 a week, up 12.7% in a year and for units $550 a week, up 19.6%.
Perth property moving forward
Given the demand versus supply equation in Perth, Mr Moore said the city and parts of the state will continue to see growth in 2024.
“Perth will probably be one of the better property markets this year. We’re not going to see the same increases as last year because prices have already grown strongly. Interest rates will continue to have an impact on how much buyers can borrow, and therefore spend,” he said.
PropTrack price forecasts for 2024
“Having said that, the tailwinds for Perth remain in place. It’s still relatively affordable compared to other places, we're seeing very low unemployment, wages are growing and supply remains restricted.”
Mr Keevers said if the beginning of 2024 is an indication of how the property market will end the year, Perth prices are likely to remain robust.
