Property’s dance of the different states

If you don’t like the real estate rythmn in your area, find a new beat, writes personal finance writer Anthony Keane

Many of Australia’s 2.2 million landlords – and countless others with dreams of property investment – are watching the current property price fluctuations with concern.

Home values are going backwards in half the nation’s capital cities, some are shuffling forward tentatively, and everywhere looks wobbly as the Reserve Bank’s aggressive interest rate rises start to bite.

It’s like a crazy dance contest, with nobody really knowing what moves they should make next.

Today’s median house price figures show a dance of different states, and longer-term there have been some interesting manoeuvres. Data from PropTrack and the Real Estate Institute of Australia show that between June 2012 and June 2022:

• Sydney’s median house price rose from $642,000 to $1.27 million.

• Melbourne’s median is up from $535,000 to $907,000.

• Brisbane increased from $433,000 to $799,000.

• Adelaide climbed from $395,000 to $633,000.

• Perth rose from $475,000 to $578,000.

• Hobart surged from $370,000 to $749,000.

• Canberra jumped from $494,000 to $992,000.

• Darwin is the only capital to have dropped, from $570,000 in 2012 to $550,000. Only two cities – Hobart and Canberra – have more than doubled in value and Hobart is the clear winner of the decadelong dance. It was previously the lowestpriced capital and has leapfrogged Darwin, Perth and Adelaide. Some say Hobart’s surge means it’s overvalued, but were probably also saying that a few years ago when it eclipsed several mainland cities.

Darwin’s fall from grace – in 2012 it had the nation’s second-highest house prices – suggests it’s now a bargain buy. Unless, of course, it continues to lose ground.

Property values move in different price cycles in different cities, so investors who are prepared to buy interstate can potentially profit more than those who stick to their own backyard.

There are tax benefits available for investors with multiple properties in multiple states, because most states only charge land tax on the second and consecutive properties owned there, and land tax dramatically jumps as overall landholdings rise in a state.

It’s a good idea to keep an eye on the cycles in the cities, but also remember that sometimes the cycle gets hit by a steamroller.

Rapid rises in interest rates are expected to push property prices lower in all capitals, with some market watchers forecasting falls of 15 per cent or more. That’s because a sharp rise in mortgage repayments makes housing less affordable, and less attractive.

However, some economists are forecasting that interest rate rises may stop or possibly start falling in 2023 as surging mortgage costs hit the economy hard. If this happens, the property price downturn could be short-lived.

There’s nothing wrong with buying and selling now, especially if it is in the same market. Long term, prices will rise (unless you bought in Darwin a decade ago), and there are bigger benefits from real estate including the security of housing and being able to borrow against it for other needs.

Property cycles will continue, so prepare to follow the rhythm, rather than moonwalk backwards amid falling prices.