Australia’s property market: the story so far
Australia’s property market changed gear over the past 12-18 months following years of strong price growth. After Sydney house prices grew by 85 per cent between 2012 and 2017, prices began falling in 2017; Melbourne house prices started to fall in early 2018 after a 70 per cent increase since 2012. As of September 2018, Australia’s combined capital city median house price was 5 per cent below its 2017 peak, and unit prices were down 3 per cent. Prices have fallen further in recent months. National price falls have been driven by falling house prices in Australia’s two biggest cities, Sydney and Melbourne. House prices are currently 8 per cent below their peak in Sydney and 6 per cent off their peak in Melbourne.
Tighter lending conditions have been a major contributor to the price declines. In response to APRA’s 2017 intervention to slow investor lending, banks wound back interest-only lending and increased interest rates. In 2018, banks tightened their expense and income verification of potential borrowers and have also became more cautious due to the spotlight of the Royal Commission. In addition, investors began withdrawing from the Sydney and Melbourne markets as sentiment turned and investors saw poor prospects for capital gains. This led to new investor lending falling dramatically, particularly in NSW and Victoria.
But it’s not only tighter lending conditions that have contributed to falling prices. Confidence and momentum, which have a big impact on the property market, turned around in late 2017. Falling sentiment has a reinforcing effect on prices: as prices fall, buyers become more hesitant, further pushing down prices. The ‘froth’ in some parts of the Sydney and Melbourne markets in 2017 dissipated in 2018. Another factor at play is that lots of new housing hit the market after a high rate of new construction in the previous couple of years. In NSW and Victoria dwelling completions in 2016-17 and 2017-18 were at or close to record highs. Looking forward, the pipeline of construction remains at a high level (although is dropping off), suggesting new housing construction should continue to weigh on price growth.
Domain believes Brisbane house prices will increase by 4 per cent in 2019 after not changing over the year to December 2018. Domain then expect prices to grow by about 5 per cent in 2020. After modest price growth in recent years, we expect that Brisbane houses will grow faster than most other markets over the next couple of years.
Brisbane unit prices are expected to grow by about 3 per cent in 2019 and 2020 after falling by about 6 per cent in 2018. Brisbane unit prices are predicted to bottom out in late 2018 or early 2019 after falling about 9 per cent from their peak of $411,000 in 2016.
Domain’s forecast for relatively strong house price growth in Brisbane is underpinned by a pick-up in population growth and declining unemployment. In addition, relatively affordable housing compared to Sydney and Melbourne will continue to attract new residents and investors. Brisbane unit price growth will be held down in the near-term by a large pipeline of new units that have come onto the market. However, new construction is now declining so the supply of new units is forecast to drop, which should support price growth in 2019 and 2020.
Read the full report here courtesy of LJ Gilland Real Estate https://www.domain.com.au/news/brisbane-house-prices-to-grow-by-4-to-5-per-cent-in-2019-788046/
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