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 slowly retracing their steps.
The turn in Australia’s housing markets has been remarkable, with the rebound in prices considerably stronger than many expected
The upturn in the market that last month drove Melbourne’s strongest property price recovery ever and Sydney property recorded the fastest rebound decades
The change in sentiment was driven by the combination of lower interest rates, easier access to credit and increased certainty about housing taxation.
While the combined capital city market values are down just over 6.9% from their peak, Sydney property values fell 14.9% and Melbourne property values 11.1% from their peaks but as you can see from the following graph our our 2 big capital city markets have recovered and grown in value for the last 4 months.
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 November 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.
Property prices are also expected to be supported by further employment growth and a lower unemployment rate as our Reserve Bank is hell bent on decreasing unemployment and pushing up wages.
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.
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
Supply and demand
Continued strong population growth 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 are likely to fall to 163,500 by 2020/21, which is well below underlying demand.
Sure at present some of our markets are oversupplied, 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.
QBE has forecast the following economic indicators that will affect our property markets.
House price forecasts
Our research at Metropole suggests that prices overall capital city property values are likely to increase by around 5 % in 2020 – not the double digit growth some commentators are suggesting.
This will be lead by stronger growth in the Melbourne and Sydney property markets which are playing catch up after experiencing significant falls in the last few years.
The availability of finance will be the biggest headwind.
However, interest rates are falling, consumer confidence is rising 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: Shane Oliver AMP
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.
In Domain’s mid year property report, economist Trent Wiltshire forecasts that property prices are likely to stabilise in Australia’s capital cities by the end of the year and will then exhibit moderate growth in 2020
|2019 (six-month change)||2020 (annual change)|
|Australia (combined capital cities)||1%||2% to 4%|
|Sydney||2%||3% to 5%|
|Melbourne||1%||1% to 3%|
|Brisbane||1%||3% to 5%|
|Perth||0%||0% to 2%|
|Adelaide||1%||1% to 3%|
|Hobart||0%||2% to 4%|
|Canberra||2%||4% to 6%|
Unit price forecasts
|2019 (six-month change)||2020 (annual change)|
|Australia (combined capital cities)||1%||1% to 3%|
|Sydney||2%||2% to 4%|
|Melbourne||1%||0% to 2%|
|Brisbane||0%||0% to 2%|
|Perth||0%||0% to 2%|
|Adelaide||2%||1% to 3%|
|Hobart||2%||3% to 5%|
|Canberra||1%||1% to 3%|
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 countercyclical time to look at buying an investment grade property in Sydney
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, with values across the top quartile increasing by 2.7% over the past three months compared with a 1.4% rise across the lower quartile.
The local unit market is still showing a stronger trend relative to houses, with values up 2.4% over the past three months compared with a 1.6% lift in house values.
The resilience across the 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.
For example, auction clearance rates are rising, albeit in much smaller volumes.
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.
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
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 have posted their third consecutive month of subtle gains, and house prices should continue rising, while the value of apartments will remain flat for a while.
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’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
Domain forecasts Canberra house prices to increase by 2 per cent and unit prices to increase by one per cent over the balance of this year and in 2020, they predict stronger house price growth of 4 to 6 per cent and modest unit price growth of one to 3 per cent.
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.
Perth Property Market Forecast
Perth property values have been falling for 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.
However, it will take a long time for market sentiment to pick up in the Western Australian capital.
Hobart Property Market Forecast
Hobart has been the best performing property market in the last three years, but its boom is now over.
Hobart house and unit prices increased by around 40 per cent over the past three years, but so far in 2019 prices have flatlined.
Adelaide Property Market Forecast
Domain forecasts ongoing modest property price growth in Adelaide over the balance of this year, with house prices expected to increase by one per cent and unit prices, forecast to grow by 2 per cent.
In 2020 they predict property price growth of 1 to 3 per cent.
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 3 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?
We help our clients grow, protect and pass on their wealth through a range of services including:
- 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
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
Please click here to organise a time for a chat. Or call us on 1300 METROPOLE.
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