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.
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.
Having said that, we have just worked our way through the longest and deepest property downturn in modern history.
While the combined capital city market values are down just over 10% 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
Source: Corelogic October 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.
Supply and demand:
Continued strong population growth at a time 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 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.
At present some of our markets are oversupplied, particularly with the wrong kind of stock.
There are too many Lego Land high rise apartment buildings that owner occupier and tenants are 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.
Economic indicators
QBE have forecast the following economic indicators that will affect our property markets.
House price forecasts
Our research at Metropole suggests that prices capital city property values are likely to increase by 3- 5 % in 2020 – not the double digit growth some commentators are suggesting.
Availability of finance will be the biggest headwind.
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).
We are closely watching days on market (how long it takes a bend or to sell their home) 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.
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.
Source: Westpac
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% |
Source: Domain
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% |
Source: Domain
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 – it’s playing catch up.
But, as always the 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 fall considerably more than that average this year (we’re looking at you off the plan properties and new apartments), while some segments of the market are holding their own.
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
If you’d like to know a bit more about how to find these investment gems give the Metropole Sydney team a call on 1300 METROPOLE or click here and leave your details.
Melbourne Property Market Forecast
Melbourne house prices have fallen 11% and the value of Melbourne Apartments has dropped 8% since their peak, but Domain economist Trent Wiltshire forecasts that house and unit prices will increase by one per cent between June and December 2019 and in 2020, house prices will grow by 1 to 3 per cent and unit prices by 0 to 2 per cent.
But the Melbourne property market is very fragmented, with property prices in some areas already picking up considerably.
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
Domain economist Trent Wiltshire forecasts that Brisbane house and unit prices will bottom out in the next six months and house prices will start rising, hile the value of apartments will remain flat for a while.
However, Brisbane house prices are expected to grow by 3 to 5 per cent next year
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.
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.
If you’d like to know a bit more about how to find investment grade properties in Brisbane please give the Metropole Brisbane team a call on 1300 METROPOLE or click here and leave your details.
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 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.
Perth Property Market Forecast
Perth property values have been falling for five years since mid-2014, but domain expects prices to bottom out over the next six months and forecasts 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.
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.
Hobart Property Market Forecast
Hobart has been the best performing property market in the last three years, but it looks like the 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.
In 2020, Domain forecast house price growth of 2 to 4 per cent and price growth of 3 to 5 per cent for units.
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.
Adelaide house prices have risen steadily at about 3 per cent per year in recent years (units have grown at about 2 per cent annually), although prices have stabilised in 2019.
WHAT CAN YOU DO TO STAY AHEAD IN THE CURRENT MARKET?
As signs point to great countercyclical buying opportunities in the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award-winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 METROPOLE.
You may also be interested in reading:
- Australian property market forecast to turn the corner in 2019 | Leading Economist
- Brisbane Property Market predictions for 2021
- Sydney Property Market predictions for 2021
- Melbourne Property Market predictions for 2021
from Property UpdateProperty Update https://propertyupdate.com.au/property-predictions-for-2021-revealed/
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