The latest data on residential rents was published today by SQM Research – and it provides further evidence that markets are stronger in the smaller capital cities and in regional Australia, than they are in the big cities.

This isn’t surprising because vacancy rates are quite high in Sydney and Melbourne, but they’re very low in the other capital cities and in particular in many parts of regional Australia.

All of that is reflected in the data on rents from SQM Research. In annual terms, the national average situation is a 4.3% rise in house rents and a 2.5% rise in apartment rents. But for the capital cities, the average situation is a 2.4% annual fall in house rents and a 5.2% fall in apartment rents. And in the past month, nationally there’s been a 1.5% rise in house rents and a 2.2% rise in apartment rents, but for the capital cities rents have fallen in the past month 1.1% for houses and 1.2% for apartments.

So why is that?

Because rents overall are down in Sydney and Melbourne, especially Sydney which has by far the highest vacancy rates in capital city Australia. Sydney rents are down 7% in annual terms, according to the SQM figures. If you removed those two biggest cities from the equation, the overall situation for the six other capital cities would be rising rentals. In annual terms, Perth rents for houses have risen 7.4% while apartments are up 5.4%. And there have been significant rises in the past month as well, which provides further evidence that the Perth market is on the rise. In Canberra, house rents have increased 6.6% in the past year, while apartments are up 3%. The SQM figures also show rising rents in Adelaide.

What do Perth, Adelaide and Canberra have in common?

They’re all places where Covid-19 is under control and it’s generally business as usual, except for the border closures. And they’re all places with very low vacancy rates. We know from other research that there are dozens of markets throughout regional Australia which have very low vacancies and rising rentals. Some markets in regional Queensland have the lowest vacancies on record and there is major upward pressure on rents in places like the Sunshine Coast, Mackay and Townsville. The problem for consumers interested in real estate is that our major media mostly comes out of Sydney and Melbourne – and journalists are focused primarily on those two big cities, where they are plenty of negatives to write about. We’re not hearing much about the state of play in the rest of Australia – which means two-thirds of Australians are not getting much in the way of news about their home patch. Markets are solid-to-strong across the nation – but we’re not hearing about it in mainstream media.

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CoreLogic’s quarterly property update provides further evidence that Australia overall is holding up extremely well in the face of the pandemic.

Dwelling prices – that’s the national average – fell by just 0.8 per cent over the June quarter, despite some economists saying the market could fall by as much as 20 or 30 per cent. The capital cities saw a 1.1 per cent reduction in house prices – overall, as a generalisation – in the June quarter. But, in the regions, properties grew by 0.3 per cent during the June quarter. And that provides further support for one of my core messages – that regional Australia is, generally speaking, much stronger than the capital cities.

CoreLogic says in its report: “Housing market value declines were relatively mild over the June quarter. This is thought to be a function of record-low mortgage rates, home loan repayment deferrals and various demand-side government stimulus for owner-occupier purchases.”

Actually, I think they’re wrong in their assessment of the reasons WHY prices are generally holding up so well. It has nothing to do with low interest rates – we’ve had record low rates for years and it’s not about home loan deferrals. The reality is that much of Australia – particularly Australia outside of Sydney and Melbourne – is pumping quite strongly.

There are few virus problems, it’s business as usual (almost), first home buyers are very active (helped by government assistance), vacancies are very low and rents are rising – and there’s a good balance between supply and demand, in terms of properties for sale. There is still good demand for real estate overall – but many vendors are staying out of the market, so the active buyers are competing for a relatively small supply of listings. And that is keeping property values solid.

CoreLogic notes that not all capital cities are behaving the same way, as the health crisis impacts each city differently. I agree. That’s always the case. There are always differences from one city to the next. CoreLogic says: “Melbourne saw the sharpest decline in values of the capital city markets, led by declines in the Inner East and Inner regions.” It says some smaller capital cities continued to experience an increase in dwelling market values over the June quarter. For example, Adelaide, which has historically shown very little volatility in its markets, saw a 0.7 per cent increase during the quarter. And Canberra has continued to deliver price growth through the pandemic period.

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While the pandemic has impacted markets in the biggest capital cities, many parts of regional Australia are recording solid to strong price growth – including in the Central West region of NSW.

The Domain House Price Report for the June quarter suggests that Parkes – which is a location that I have included in several of my Hotspots report over the past two years – has recorded the biggest increase in the Central West region . Parkes prices have grown 18 per cent in the past 12 months.

Also doing well in the Central West region is Orange – another location I have highlighted in our Hotspots reports recently. Orange prices have risen 8 per cent, with the median cost now at $447,000. Other towns doing well in this region include Cowra (up 6 per cent); Bathurst (up 5 per cent); Forbes (up 4 per cent); and Dubbo (up 2 per cent). Now, this pattern of regional cities and towns recording moderate to strong price growth at the moment is common across regional Australia. You’ll find similar stories in regional Victoria, in Queensland, in South Australia and in Tasmania. It’s been happening consistently for the past couple of years – and it’s still happening. In some cases ,it’s happening DESPITE the pandemic – but in many locations it’s happening BECAUSE of the pandemic.

Arguably the strongest trend in real estate across the nation is what I call The Exodus To Affordable Lifestyle. This trend was under way before the pandemic started – and it has been exacerbated and enhanced by the pandemic lockdown. New figures from CoreLogic show that three-quarters of Australia’s major regional housing markets have risen in value in the past year. CoreLogic research found that of the 50 house and unit markets in 25 of the country’s biggest non-capital-city regions, values increased in 37 markets in the 12 months to July 2020. House prices went up in 20 regional areas and dropped in only five regions. Locations that stood out for strong price growth included Launceston in Tasmania, the Illawarra region in NSW, and Ballarat in Victoria.

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Further evidence of solidity in real estate markets has come from monthly data presented by Commonwealth Bank. This indicates that spending intentions around buying a home increased again in July.

CBA chief economist Stephen Halmarick also suggested there were improvements in spending intentions around retail, travel and education. CBA’s home-buying intentions index continued to bounce back from the COVID-19 shock. Sentiment around buying a new home has now climbed back to the same level it was in July 2019, which was just after the RBA announced the first of a three-round rate-cutting cycle which saw the official cash rate reduced from 1.5 per cent to 0.75 per cent.

Halmarick says gains in the index have been driven largely by two key inputs:

  • an increase in the number of home loan applications received by the bank, and
  • a corresponding increase in the number of Google searches about buying a house.

He says: “CBA data shows a rise in new mortgage applications taking advantage of low fixed rates, and this should help provide support to home buying in the future,”.

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Perth’s property market is set to be in high demand well into 2021 – and potentially longer – with the State’s response to COVID-19 prompting expats and interstate FIFO workers to call WA home permanently.

Leading demographer Bernard Salt says Perth is “the right place for the moment” thanks to WA’s management of the pandemic and a move towards encouraging people to work from home. He said rather than highly-skilled West Australians moving abroad or interstate to pursue careers in bigger cities, those people can now operate remotely — and in a State with no community transmission. Salt says: “It very much seems like Perth is the right place for the moment. “If you look at the last property boom maybe four or five years ago, this seems to be pushing in the right direction so hopefully it’s going to last maybe the first half of the 2020s.”

I certainly agree that Perth is heading into a growth phase. Perth reflects many of the dominant trends in Australian real estate at the moment. It has the pandemic under control, its economy is pumping quite strongly, it offers an affordable lifestyle and it has low vacancies and rising rents. Other capital cities that offer similar qualities at the moment include Adelaide and Brisbane. And the capital city that doing the best in terms of price growth is Canberra. Canberra has delivered growth in its house prices in each of the past five months – in other words, right throughout the pandemic period.

So, the key message from all these research-based items I have presented today is that growth is the norm in Australia real estate at the moment, NOT the exception as mainstream media is suggesting.