State of the States: Local Economies, Local Prices

A question I get asked more than any other is where I see the Australian property market heading in the next 12 months OR what I expect to happen with Australian property prices this year or next year.

And the answer I provide is usually delivered in multiple parts.

Firstly, there is NO Australian property market.

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.

Secondly, what I expect to happen with prices depends on where, because we have so many different markets across the nation.

Thirdly, real estate is local in nature and the market activity and the price movements depend on the local economy which underpins the location’s property market.

Take a look at the price growth results among the eight capital cities for the past year and you will note that some have had boom growth, some moderate growth, some have stagnated and a few have had falling prices. 

All those different scenarios occurred within just the eight capital 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? 

And the answer is: Because real estate markets are very LOCAL in nature. The greatest influence on them is the local economy.

So, if you want to understand a particular property market, first you need to understand everything that’s happening there in terms of the various local industry sectors, the infrastructure and other developments that are under way or in planning, and what’s happening with local jobs creation.

Once you can understand whether the location’s economy is weak or strong, growing or stagnant or contracting, then you can begin to determine what might happen with property prices.

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 three 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.

But it doesn’t surprise the team at Hotspotting because we are very aware that the economy of Adelaide and South Australia is pumping strongly, helped by its status as the high tech innovation capital of the nation and the leading state for alternative energy developments. It also has a big education sector, a major military economy and a lot more.

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.

PropTrack’s data showing the leading suburbs and towns in Australia for price growth in the four years since Covid arrived, finds that the top 5 suburbs in the nation for price growth performance were ALL affordable suburbs in Adelaide.

In the latest edition of The State of the States, the No.2 ranked economy was (again) Western Australia - 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 now 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 the next 12 months and beyond, coupled also with very strong population data and a significant program of big infrastructure projects.

Consistently at the bottom of the CommSec report rankings is the Northern Territory – and it does not surprise us that Darwin has the weakest house price performance of all the capital cities in the past 12 months.

Other economies with lukewarm economic performance are Tasmania and the ACT – and this corresponds with the poor price performance of the Hobart and Canberra housing markets in the past year.

So this report, freely available to anyone who is interested, is one that’s worth following – because, read in conjunction with other data, it can provide clues about where prices are likely to rise in the near future.