What’s ahead for our property markets in the next year or two?
That’s a question people are asking now that our real estate markets have turned the corner.
- WHAT’S AHEAD?
- PROPERTY PRICE FORECASTS
- SYDNEY PROPERTY MARKET FORECAST
- MELBOURNE PROPERTY MARKET FORECAST
- BRISBANE PROPERTY MARKET FORECAST
- CANBERRA PROPERTY MARKET FORECAST
- PERTH PROPERTY MARKET FORECAST
- HOBART PROPERTY MARKET FORECAST
- ADELAIDE PROPERTY MARKET FORECAST
- WHAT CAN YOU DO TO STAY AHEAD IN THE CURRENT MARKET?
It wasn’t that long ago that the media was predicting housing market Armageddon, but the property pessimists have been proven wrong (once again) as our property markets bottomed out in June 2019 and are now rapidly retracing their steps.
The turn in Australia’s housing markets has been remarkable, with the rebound in prices considerably stronger than many expected
The Melbourne and Sydney property markets have surprised most commentators with the strength of their resurgence.
The change in sentiment was driven by the combination of lower interest rates, easier access to credit and increased certainty about housing taxation.
Melbourne should reach a new peak in property prices in the first quarter of 2020 and Sydney should retrace all its losses not long after that.
Nationwide property prices are likely to continue to rise till the end of the year, especially in Sydney and Melbourne after which gains are likely to moderate in 2020
Source: Corelogic December 2019
So what’s ahead?
House prices across all our capital cities are expected to grow over 2020/21.
The combination of lower interest rates, easing lending serviceability buffers and increased consumer sentiment is expected to bring more buyers back into the market.
And with property values rising, sellers (who have generally been on strike) will slowly return to the market increasing stock levels.
We know the Reserve Bank is hell bent on decreasing unemployment and pushing up wages and that means it’s likely interest rates will fall further in 2020
However the pace of property price recovery may be limited because, while interest rate serviceability thresholds for most borrowers has been reduced, lenders are expected to maintain their more conservative approach towards assessing borrower income and expenses.
Various commentators have offered different forecasts for what’s ahead in 2020:
The ANZ Bank has recently revised their forecasts for house price growth over the next year and now expect overall property prices to rise nearly 6% in 2020 (compared to their previous forecast of 3%.)
Source: ANZ Bank
According to research house Moody Analytics, the Sydney and Melbourne property markets will be the top performing housing markets in 2020.
Their analysts expect Sydney house prices to jump 7.7 per cent in 2020 and a further 7.6 per cent by 2021.
And they forecast Melbourne house prices to increase by 7 percent in 2020 and another 7.8 percent in 2021.
Corelogic and Moody’s 2019 third quarter housing forecast report has predicted a significant uptick across the east coast capital city residential markets next year, after suffering the largest downturn in 40 years.
Home Value Forecasts: Corelogic-Moody’s
|2020 (Houses)||2020 (Apartments)||2019 (Houses)||2019 (Apartments|
^ % change on previous year: Source: Corelogic, Moody’s Analytics.
Westpac expect the price upswing to continue in 2020 but with a key transition over the course of the year as deteriorating affordability caps gains in Sydney and Melbourne and displaced demand starts to lift prices in other cities, most notably Brisbane.
The three major eastern capitals are forecast to see price gains in the 5-10% range, Brisbane outpacing slightly over the full year.
Adelaide and Hobart are expected to see gains in the 0-5% range – improved but still lagging. Perth is likely to see prices stabilise but recovery remain elusive.
SQM Research’s annual Housing Boom and Bust Report forecasts even stronger price growth, suggesting that most of Australia’s capital cities will benefit from the interest rate cuts and loosening of credit restrictions.
SQM’s base case forecast is for dwelling prices to rise between 7% to 11%, which is a strong bounce back from the price falls recorded over 2018 and the first half of 2019.
Sydney and Melbourne will drive the rises.
SQM forecast Sydney property values to rise between 10% to 14% and Melbourne property prices to rise 11% to 15% next year
Other cities are also expected to record price rises.
Source: Christopher’s Housing Boom and Bust Report 2020
Their base case forecasts assume no changes in interest rates and, importantly, no intervention by the Australian Prudential Regulation Authority (APRA).
This base case also assumes a recovering Australian economy that has responded to the rate cuts of 2019 and reduced international trade tensions.
One that is also been driven by ongoing strong population growth rates.
The Brisbane property market will benefit from the recovery in mining investment and should record price rises in the order of 3% to 6%.
SQM believe that the Perth will finally bottom out next year as a result of the improved international outlook and an existing recovering in mining investment, the city of Perth will finally record price rises next year after a prolonged housing downturn.The forecast is for Perth dwelling prices to rise between 3% to 6%.
Darwin is the only city expected to record price declines.
The forecast of for prices to fall between -2% to -5%, as the Darwin economy continues to struggle and excess stock for sale continues to weaken the local market.
Supply and demand
Continued strong population growth (see chart below) will be another key driver supporting our property markets.
Net overseas migration is forecast to average a net inflow of 243,000 people per annum in the next 3 years and most of these people have jobs and are at household formation age.
At the same time, new dwelling building approvals fell by 19% in 2018/19 and the forecast number of dwelling completions (see chart below) are likely to fall to 163,500 by 2020/21, which is well below underlying demand.
Sure some of our markets are oversupplied at present, but this is generally with the wrong kind of stock.
There are too many Lego Land high rise apartment buildings that owner occupier and tenants are now shying away from considering all the issues regarding building standards.
In fact, it’s likely many of these buildings will become the slums of the future as the stigma that taints all the high rise towers built over the last decade will take a long, long time to wear off.
What about affordability?
As 2020 unfolds we expect another dynamic to come to the fore around affordability and population flows.
Despite the price correction in 2017-18 and a further lowering in interest rates, affordability remains relatively stretched in Sydney and Melbourne.
The resurgence in prices see these markets run into the same affordability constraints that emerged in 2016-17 as prices near previous peaks.
Investor activity will lift as low deposit rates and equity volatility drive more interest in real estate but funding is likely to remain a constraint on investors.
These pressures are in turn expected to see a gradual shift in population flows as would-be buyers priced out of the Sydney and Melbourne markets seek out more affordable markets.
The precise timing, magnitude and direction of this shift is highly uncertain. There are already some hints of a shift with population growth slowing slightly in NSW and Vic over the last year or two but picking up elsewhere. Affordability and other factors suggest the shift will favour Queensland.
House price forecasts
Our research at Metropole suggests that prices overall capital city property values are likely to increase by around 5 -7 % in 2020 – led by Melbourne and Sydney where well located properties could easily grow 10% in value over the year.
Remember these two cities are still playing catch up after experiencing significant falls in the last few years.
Currently it’s home buyers buying up our markets with first home buyers getting a foot on the property ladder and established home owners upgrading in a rising market.
However when investor numbers are low – they’re having difficulty obtaining finance – but when they return this will give another boost to our markets.
But our languishing economy and the availability of finance will be the biggest headwinds.
However, interest rates are falling and the banks are starting to loosen the screws and lend a bit more.
This has meant more people are applying for home loans, more people are coming to open for inspections and vendors who have sat on the sideline waiting for the market to turn our gaining confidence as auction clearance rates are rising (although on low numbers).
The following graphic from ANZ shows how historically rate cuts (the red squares) have always driven market rebounds
At Metropole we are closely watching days on market (how long it takes a bend or to sell their home) waiting for this to drop and vendors discounting (how much a vendor needs to discount their asking price to affect a fast sale) as well as auction clearance rates as indicators of the strength of the market.
Clearly the trend in auction clearance rates has been positive since mid 2019.
Source: Dr. Andrew Wilson
The most recent finance figures released in October 2019 show a clear lift in finance activity since mid year with a more even spread of finance approvals to owner occupiers and investors.
This is a very positive sign for our markets moving forward as finance approvals are a leading indicator – most people get their finance before they start looking for a new home or investment.
Sydney Property Market Forecast
After experiencing the largest correction in house prices in the last three decades, Sydney’s property market is now exhibiting the largest gains around the nation – but it’s just playing catch up.
As always the Sydney housing markets are very fragmented and the increase in values is mainly occurring in the inner and middle ring, more affluent suburbs.
The fact that Days on Market and Vendor Discounting is dropping and auction clearance rates are rising are all positive signs for Sydney property market
However, some segments of the Sydney property market are likely to keep falling (we’re looking at you off the plan properties and new apartments), and other segments (the outer suburban lower-priced properties) are just holding their own.
Sydney property investors are abandoning the off the plan apartment sectors and many of those who purchased off the plan a few years ago are now having trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.
But in the background, strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney.
At the same time, international interest from tourists and migrants continues.
Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west at a significant discount to what they would have paid a few years ago and the prospect of the market moving forward over the next few years.
It is a great time to look at buying an investment grade property in Sydney and take advantage of this new property cycle
SYDNEY DWELLING PRICES
Melbourne Property Market Forecast
Melbourne house prices turned the corner in mid 2019 and have been rising ever since
But the Melbourne property market is very fragmented, with the recovery trend more noticeable at the expensive end of Melbourne’s housing market.
Stronger capital gains are concentrated within the upper quartile of the market, where Melbourne’s most expensive 25% of properties have recorded a gain of 11% through the recovery phase to date, while values across the lower quartile are up a smaller 5.7%.
The resilience across Melbourne’s apartment sector, despite higher supply levels, probably comes back to a combination of affordability constraints in the market as well as more first home buyers supporting housing demand across the lower price points of the market, thanks to the First Home Owner incentives.
At Metropole we’re finding the Melbourne property market is regaining its confidence and the underlying fundamental growth drivers remain strong.
Overall property values will be underpinned by a robust economy, jobs growth Australia’s strongest population growth and the influx of 35% of all overseas migrants.
Remember…Melbourne rates as one of the 10 fastest-growing large cities in the developed world, with its population likely to increase by around 10% in the next 4 years.
MELBOURNE DWELLING PRICES
If you’d like to know a bit more about how to find investment grade properties in Melbourne please in the balance of this year give the Metropole Melbourne team a call on 1300 METROPOLE or click here and leave your details.
Brisbane Property Market Forecast
After a lacklustre decade and a mild price correction in the first half of 2019, most property economists are now very positive about Brisbane property
The BIS Oxford Economics property forecast predicts Brisbane will see the greatest national gains in house prices, with Brisbane’s median house price is predicted to jump 20 per cent by 2022.
The Brisbane property downturn has been quite shallow compared to the big two capital cities, with local values only 2.4% below their peak.
This followed a relatively mild growth cycle where growth in housing values in Brisbane averaged only 1.4% per annum over the past five years, very different to the booming conditions of our two biggest capital cities.
But now Brisbane values are now posting gains and house prices should continue rising, while the value of apartments will remain flat for a while.
The recovery trend has been slightly stronger across Brisbane’s premium market, with the top quartile recording a rise of 2.4% compared with a 1.5% lift across the lower quartile of the market.
With migration rates lifting, supply under control and generally healthy levels of housing affordability, the Brisbane housing market fundamentals are looking healthier compared to most other capital cities.
At the same time the underlying strong demand from home buyers and investors from the southern States at a time when yields are attractive and housing affordability is relatively healthy and putting a floor under property prices.
BRISBANE DWELLING PRICES
Brisbane’s economy is being underpinned by major projects like Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick-off for a few more years.
There is minimal further downside for the Brisbane housing market and now is an excellent time to ride the next property wave in Brisbane
Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in a property.
At the same time we are getting more enquiries from interstate investors there we have for many, many years.
Canberra Property Market Forecast
Canberra’s property market has been a “quiet achiever” with dwelling values having grown 3% over the last year and have now reached a new peak.
This will make Canberra one of Australia’s strongest housing market in 2020, underpinned by strong population growth and low unemployment.
However, the ongoing high level of a new apartment building (unit, apartment and townhouse approvals over the past 12 months are 30 per cent higher than in the previous year) will keep unit prices from rising.
And the excessive Land Tax in Canberra will keep investors away.
CANBERRA PROPERTY TURNOVER AND DWELLING PRICES
Perth Property Market Forecast
Perth property values have been falling for over five years since mid-2014, but these are likely to bottom out over the next year and then after a period of flat and consolidating prices there is likely to be a gradual increase in home and apartment values in 2020.
Perth values are now amongst the most affordable amongst the capital cities, but it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.
One of the positive factors for Perth will be rising population growth – forecast to be 1.5% in 2020, up from 0.9% in 2018.
PERTH DWELLING PRICES
Hobart Property Market Forecast
Hobart has been the best performing property market in the last four years, and Hobart property values have increased by 4.2% over the last year.
The Hobart market lost momentum early this year but house prices in Hobart rose 2.2% over the last month (+2.6% over the last quarter) while unit prices rose 2.6% (+3.8% over the last quarter.)
However, it’s likely the Hobart market will slow down in the next year.
Over the last few years too many investors chased the Hobart “hot spot” at a time when there was a lack of employment drivers, insufficient population growth and not enough infrastructure spending.
Remember home buyers create a property market (they make up 70% of buyers) and investors create property booms – which is what’s happened in Hobart.
And Hobart is too small a market to be a long term “investment grade” proposition
HOBART DWELLING PRICES
Adelaide Property Market Forecast
Adelaide’s housing market has been under-performing relative to most of the other capitals, with values 0.7% below their peak of December 2018
Dwelling values across the lower quartile are 2.0% higher over the past twelve months compared with a 2.6% drop in values across the upper quartile of the market.
By sub-region, weakness has been more pronounced in the city’s west and ‘central and hills’ area. Across the state’s regional areas, prices have been choppy in the Barossa, most recently declining, but fi rmer in the South East.
On the other hand, Adelaide rental growth is tracking above the capital city average with rents up 1.7% over the past twelve months.
ADELAIDE DWELLING VALUES
WHAT CAN YOU DO TO STAY AHEAD IN THE CURRENT MARKET?
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
Sure our property markets are improving, but correct property selection is even more important than ever, as only selected sectors of the market are likely to outperform.
Why not get the independent team of property strategists and buyers’ agents at Metropole to help level the playing field for you?
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- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
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- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
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