What does 2017 hold for Australia’s property market?
The start of the new year is always a good time to reassess your financial situation and one area that is usually on people’s minds is property: whether to buy, sell or pay down more debt. But making these decisions requires an understanding of what the coming year is likely to hold for the Australian property market, especially around prices and interest rates.
What happened in 2016?
Data from property information group CoreLogic shows capital gains in property accelerated over the past year, taking the calendar year growth rate to its fastest pace since 2009. Its Home Value Index showed capital city dwelling values rose by 10.9 per cent in 2016.
CoreLogic head of research Tim Lawless said growth rates have also shown an increasing divergence between the broad housing types. “Over the past 12 months, we have seen capital city house values rise by 11.6 per cent while unit values have increased by roughly half the pace at 5.9 per cent,” he said. “The divergence in growth rates is the most distinct in Melbourne and Brisbane where concerns around unit oversupply have eroded buyer confidence.”
The previous year also saw several new events thrown into the mix – notably Brexit and the election of Donald Trump as the new US president. The ramifications of events such as these are certainly something to consider although the effects on the property market are unlikely to be known for some time. We previously wrote on this topic here.
Property price predictions
Property prices remain a hot topic and while opinions among the experts vary slightly, most believe prices will continue to strengthen at least for another year, especially in Sydney and Melbourne.
HSBC chief economist Paul Bloxham believes Sydney and Melbourne house prices will rise again in 2017 but the apartment-led construction boom will begin to decline by year-end. He said that in Melbourne, Brisbane and Perth there are signs of an oversupply of apartments, although Sydney still appears to have an undersupplied unit market.
A nationwide study by BIS Shrapnel, which was carried out for QBE LMI, found median prices in Sydney, Melbourne and Brisbane are likely to increase again in the coming year but the annual growth rate is likely to be well off the rapid gains of the previous years. The study showed Sydney’s median house price should rise 1.7 per cent to $1.065 million while Melbourne prices could rise by 2 per cent to $790,000. Brisbane prices are forecast to rise 2.7 per cent to $540,000.
It also found the national apartment market is likely to soften as the oversupply of units come online. According to the study, the median apartment price will fall by 1.8 per cent this year with Melbourne units on track to slide 3.3 per cent and Brisbane by 3.5 per cent.
In an article for The Australian, QBE LMI chief executive Phil White said the expected increase in the supply of new apartments in capital cities could put prices under pressure for at least the next three years.
“The increased prevalence of unit dwelling commencements and the length of time for their construction means that total new dwelling supply will remain elevated in the next two years and continue to place pressure on residential markets,” he said.
But not all economists are ready to give predictions on the housing market. In a recent article in the Australian Financial Review, CoreLogic’s Lawless said that the outlook for 2017 was becoming increasingly challenging to give direction on. He said, “On one hand we have dwelling values broadly rising across most capital cities, however as we look below the surface it is clear that individual housing markets are at very different stages of the cycle and responding to vastly different economic and demographic conditions.”
In the same article, AMP Capital chief economist Shane Oliver reaffirmed his prediction that Sydney, Melbourne and Brisbane apartment prices will fall as much as 15-20 per cent in the next two years because of the massive multi-dwelling building boom.
Of course interest rates will be a key factor in what happens within the property market, and due to their increased funding costs, many lenders have recently been quietly raising rates across some or all of their loan portfolio.
At its last meeting, the Reserve Bank of Australia left the cash rate at 1.5 per cent but the disconnect between the RBA and commercial banks is likely to continue especially as uncertainty occurs in global markets. This uncertainty is expected to keep the RBA cash rate on hold for the foreseeable future.
How the property market performs this year will depend on a number of factors with global events – especially how Trump performs initially – likely to play a greater role than usual.