2018 Property Prices: the good, the bad and the unexpected
It’s that time of year when everyone polishes the crystal ball to see where Australia’s housing market is heading. And there are always plenty of differing opinions!
What we do know is that Sydney’s housing market, as expected, has come off the boil – and NSW has lost its crown to Victoria as the market with the strongest outlook, according to the latest Property Council of Australia Confidence Index.
The survey of property industry professionals showed that the capital value expectation for the residential sector in NSW is at its lowest point since September 2012, with expected construction activity also at its lowest point since the survey’s inception; both have contributed to the lowered overall industry confidence.
The December minutes from the Reserve Bank of Australia (RBA) confirmed that conditions have eased in the established housing market, and most noticeably in Sydney. Prices have been declining while auction rates have been falling.
The slowdown has been attributed predominantly to the changes to investor lending policies – and this will determine if and when prices rise again later this year. The restrictive policies followed new measures announced by the Australian Prudential Regulation Authority (APRA) in March 2017 around residential mortgage lending that were designed to curb investor borrowing.
According to RBA governor Philip Lowe, the easing in housing credit growth had been accounted for by the major banks, which had been more affected by the need to restrain interest-only lending to comply with the supervisory measures announced earlier in the year.
Sydney at slower speed
SQM Research, in its Housing Boom and Bust Report, stated that Sydney’s median house price will increase 4 per cent to 8 per cent over 2018, with much of the increase expected to occur in the latter months of the year. It follows an expected 6 per cent to 8 per cent rise in 2017 compared with 2016.
According to SQM director Louis Christopher, Sydney will record a soft market in the first half of the year, with prices recovering in the second half as the amount of investment lending increases. Melbourne’s property market is also expected to experience a relatively modest slowdown.
“Offsetting a slowdown in Melbourne and Sydney will be first-year property market recoveries for Perth and Darwin and an ongoing real estate boom in Hobart’s property market, which is set to record the highest level of accelerated price growth of any capital city [in 2018] at between 8 per cent and 13 per cent,” Mr Christopher said.
In the Sunshine State, Brisbane’s property market is expected to experience slightly stronger gains than those posted in 2017, with property prices forecast to rise between 3 per cent and 7 per cent. However, the persistent overhang of surplus property listings will hold back property in that city from a faster rate of inflation.
Recent research shows that Adelaide’s housing market has been “steady” compared with other states and some experts are predicting 2018 will be fairly similar conditions. Canberra, too, is expected to show modest growth this year, after also outperforming Sydney in 2017.
Despite the correction being experienced in Sydney, dwelling values remain 70.8 per cent higher than their cyclical low points in February 2012, said CoreLogic’s head of research, Tim Lawless.
Apple Isle ahead of the rest
By far the best performer in 2017 was Hobart. According to CoreLogic, dwelling values rose 1.5 per cent for the month (December 2017), 3.1 per cent for the quarter and 12.3 per cent for the year. The main reason for capital appreciation was the city’s affordability.
Mr Lawless said while expects national dwelling values to fall in 2018, Hobart’s housing market was still growing. “The trend rate of growth showed signs of slowing over the final quarter of 2017 and dwelling values are likely to continue rising but probably not at a double-digit annual pace.”
SQM Research’s Louis Christopher said he expects Hobart to record the best percentage growth of all the capital cities for the second year in a row – and he believes double-digit growth could be on the cards. “It will be an ongoing boom for Hobart and its accelerating market. The fast economy and housing supply shortage makes double-digit growth likely,” he said.
Building approvals jump
Australia’s building approvals are also in a good place. In November 2017, building approvals jumped by 11.7 per cent to 21,055 in seasonally adjusted terms, according to the Australian Bureau of Statistics (ABS). It was the third-largest monthly total on record, only surpassed by April and August 2016, the peak of the country’s residential building boom. In percentage terms, this was the largest monthly gain since November 2016.
All of the increase was driven by high-density dwellings.
The strongest performer was Victoria, where approvals for “other residential dwellings” (higher density apartments and townhouses) was up 80 per cent on the level of October and was the highest level on record. Put simply, the overall increase in building approvals was almost entirely driven by Victoria. The increase in high density building in the Victorian capital meant overall approvals comfortably beat market expectations of a 1.0 per cent decline.
JP Morgan analyst Tom Kennedy said the strong Victorian results were likely due to the approval of a very large single project, and that the spike was unlikely to be sustained. “We are inclined to view the November approvals surge as likely to come with a sharp correction in coming months,” Mr Kennedy said. Macroprudential policy will remain a binding constraint on mortgage growth for some time yet, he added.