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Terry’s View: Real Estate’s a Local Game

Terry's View: Real Estate's A Local Game

One of the fundamentals of understanding real estate dynamics is remembering that real estate markets are local in nature – and they are influenced by the local economy in which they sit, far more than by national factors.

Although economists and journalists often refer to “the Australian property market” and predict what will happen with “Australian property prices”, the reality is that there is no such entity as the Australian property market.

Take a look at the price growth results among the eight capital cities for last year and you will note that some had boom growth, some had moderate growth, some stagnated and a few had falling prices. All those different scenarios occurred within just the eight cities. There were similar variations occurring throughout all the regional markets.

All those places sat within the same national economy, all had the same situation with interest rates and all were operating under the one Federal Government.

Why, then, did we have all those different outcomes? Because real estate markets are very LOCAL in nature. The greatest influence on them is the local economy.

For that reason, at Hotspotting we are always keenly interested in a quarterly report published by CommSec, called the State of the States report. This report uses a series of different metrics to rank the eight state and territory economies. And I have found, over many years, that there is a correlation between the strength of the state or territory economies and the performance of the capital city property markets.

The past two quarterly editions of the State of The States report have ranked South Australia as the No.1 ranked economy in the nation, a finding that would surprise many people. Coinciding with the rise and rise of the South Australian economy has been the rise and rise of the Adelaide property market.

In 2023, Adelaide was the No.1 or the No.2 market in Australia for house price growth (depending on whose statistics you believe), in competition with Perth.

In the latest edition of The State of the States, the No.2 ranked economy was Perth - and again, there’s a clear correlation between that reality and the performance of Perth as one of the leading boom property markets in the nation.

Melbourne and Victoria rank No.3 on economic performance and this is one of several reasons why we believe that this market is poised for price growth in 2024, coupled also with very strong population data and a recent uplift in sales activity.

Consistently at the bottom of the CommSec report rankings is the Northern Territory, with its biggest weakness in the latest quarterly edition being housing finance – and it does not surprise us that Darwin has the weakest house price performance of all the capital cities in the past 12 months.


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