Property markets are always on the move

Have the Perth and Adelaide housing markets peaked?

And if so, where will we find the next boom markets?

The answer lies in who is doing the buying and selling.

Experts commonly refer to a city’s median housing price when describing its performance, but this is misleading.

The median price lumps all buyers and sellers, such as first home buyers, upgraders, downsizers and investors together, as if they all buy and sell in the same suburbs at the same time.

Markets do not behave like this at all, so understanding which buyers or sellers are active at any time and where they are likely to buy or sell enables us to make far more accurate predictions.

For example, Perth and Adelaide have been two of the nation’s best property market performers in recent years, but the strongest growth has occurred in their most affordable suburbs such as Adelaide’s outer northern suburbs and Perth’s outer southern suburbs.

I publicly predicted this trend at the time.

I accurately forecasted that it was not first home buyers, upgraders or even downsizers who would cause those booms, but increasing numbers of East Coast investors and buyers agents.

This is because investors and their buyers' agents tend to look for suburbs with the lowest buy prices and the highest rental yields.

At the time, house prices in those locations were the most affordable of any capital city suburbs in Australia, while rental yields were over 6% and rental demand was rising strongly.

The scene for house price booms was set.

Strong price growth encourages more buyers to join in

The growing buyer demand led to price rises which then encouraged more investors and buyer agents to join in.

As a result, the median house prices in the lower-priced suburbs of Perth and Adelaide have soared by over 50% in the last two years.

Homeowners take the money and move

Property owners in those locations have watched the value of their houses grow by $250,000 or more, while there has been far less growth in the higher-priced suburbs.

They are now motivated to use their increased equity to upgrade and buy a bigger house in a more suitable location, so the buyer demand in Perth and Adelaide is shifting from investors and East Coast buyers agents to local upgraders.

The result of this trend is that median house price growth in Perth and Adelaide is starting to move from the lower-priced suburbs to better-located suburbs with bigger homes where prices have not yet risen.

So, while the median house price in Perth and Adelaide will continue to rise, the growth will not be in the same suburbs as before.

Investors will look for affordable markets elsewhere

At the same time, investors and their buyers' agents now find that properties are becoming unaffordable and vendors in these high-growth markets refuse to negotiate on price.

Some even insist that properties be purchased unconditionally, not subject to finance or inspections. “If you don’t buy it, someone else will,” they say.

The more savvy buyers see that buying in such overheated markets is risky and start to seek out new locations where prices are low, yields are high and rent demand is rising.

So, while house prices are likely to rise in Perth and Adelaide’s more affluent suburbs as homeowners utilise their increased equity, price growth will slow down and then end in the former bargain basement-priced locations.

Prices in these former “cheapie” markets will not crash or even suffer declines while the rent demand that started the boom in the first place continues.

As long as their investments deliver strong and reliable cash flow, there’s no impetus for investors to sell.

But, for investors now entering the market, those locations have lost their low price appeal, and many may even have reached their peak.

This is when clever investors and their buyers' agents start to look for the next areas set to boom.

About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.