Adelaide house prices soften as the record highs of last quarter recede

Adelaide house prices have come down from the high of last quarter’s record prices, falling marginally over the quarter, new data shows.

The latest Domain House Price Report, released Thursday, showed Adelaide’s median house price fell by 0.6 per cent over the September quarter to $538,550.

Unit prices did not hold as well as houses, sliding further from the record high achieved earlier this year. They fell -5.2 per cent over the quarter to a median price of $302,756, the largest decrease in property values for any Australian capital city this quarter.

Domain senior research analyst Nicola Powell said despite this quarter’s moderation, Adelaide had been a steady long-term performer, making modest annual gains since mid-2013.

She also said South Australia’s weaker jobs market had weighed on demand.

“Unemployment has been rising for more than a year – the second highest rate behind Queensland,” she said. “The state’s economic growth has also waned, largely tied to declines in government expenditure.”

Increasing supply, decreasing demand

“Adelaide unit prices underperformed relative to houses,” Dr Powell said. “They’re down 5.2 per cent quarter-on-quarter. Partly, this could be attributed to the large increase in the construction of units in recent years, especially in the western suburbs.

“The exacerbated decline in unit prices may also be a reflection of houses being the preferred dwelling stock in Adelaide, as well as elevated levels of unit construction over the past 12 months.”

Tellingly, the price for units has slipped in places like West Torrens and Charles Sturt. Areas that haven’t seen as much construction, like Unley, have bucked the trend and seen a rise in the price of units year-on-year.

Investment in Adelaide’s property market is ebbing

In recent years, the housing market weakened in Melbourne and Sydney. As a result, money from investors started to flow into housing markets that looked more durable, like Adelaide.

“We were noticing a lot of eastern state investors buying in Adelaide,” says Peter Koulizos, property lecturer at the University of South Australia.

However with confidence returning to the eastern metro markets – Sydney and Melbourne both recorded rises above 4 per cent for their median house prices this quarter – Mr Koulizos said non-local investors were not as interested in Adelaide any more.

Interstaters were “looking in their own back yard again”, Dr Powell said.

“During the downturn, Adelaide came on the radar for investors. But now that we are starting to see the recovery of Sydney and Melbourne, we might start to see that investment point back towards those two cities.”

Positive predictions for later in the year

Mr Koulizos said another factor hurting investor confidence was the proposed land tax in South Australia.

“The bill has been introduced to parliament, and a decision will be introduced one way or another in December,” he said.

“Once that’s done and dusted, investors can move with surety.”

He said prices might start increasing again after the land tax issue was settled.

“There’s no property boom coming,” he said, “because interest rates and inflation are so low. But, at least, property prices will be moving in the right direction in Adelaide.”