Sydney and Melbourne house prices are expected to grow by more than 12% by the middle of next year, according to ANZ economists.
While most property reports and predictions are forecasting modest growth, ANZ is predicting a sharp rebound following the Reserve Bank’s forecasts of the economy’s recovering performance in 2020.
They predict the price fall recorded between the peak of 2017 and 2019 of 15% and 11% in Sydney and Melbourne respectively to be effectively wiped out.
There’s a consensus that Sydney will have grown by 7% while Melbourne house prices will have increased by 9% by the end of this year.
What’s going on in the Sydney property market?
Some analysts argue that we have a minor bubble as property prices rebounded very quickly. Personally, I don’t think so as mortgage rates and affordability are the key drivers.
We’re expecting Sydney to rise until people can no longer afford to buy as that is what has happened historically.
Realistically nobody knows!
Lack of stock is an issue in Sydney. i.e. Demand > Supply at the moment. Likely after two more weeks, there will be no new listings until February as there is a marketing period before an auction is held and we are approaching Christmas.
What does CoreLogic data say about the property market?
According to CoreLogic data, since the first cash rate cut on 4 June 2019 by the Reserve Bank of Australia:
- Sydney dwelling values have increased by 5.43% or 8.22 index points
- Melbourne dwelling values have increased by 5.69% or 8.43 index points
- Brisbane dwelling values have increased by 1.12% or 1.19 index points
- Adelaide dwelling values lost 0.66% in value or 0.77 index points
- Perth dwelling values lost 2.53 index points or 2.87%
*Accurate as of 31 October 2019
The overall positive 5 Capital city aggregate also pushed national dwelling values up by 3.38% or 4.44 index points in the same period.
Historically, whatever the changes in values in Sydney and Melbourne, other capital cities usually react to it with a lag.
ANZ’s senior economist attributed this sharper than expected rebound to a combination of factors:
- Lower mortgage rates due to the three cash rate cuts by the RBA;
- Easier access to credit due to relaxed mortgage lending guidelines by APRA;
- And the increasing auction clearance rate which bottomed out in December but has been increasing ever since.
Also, there’s been a shift in property sentiment from one of pervasive negativity to broad optimism.
Is Brisbane the next property hotspot?
Brisbane is predicted to grow the most. It is expected to increase by 20% over 3 years, according to QBE’s Australian Housing Outlook 2019-2022.
If you’re looking to invest, this is likely the best place to buy.
What does this mean for affordability?
As prices recover, affordability in Sydney and Melbourne will decline, likely followed by the other capital cities.
According to the deputy governor of the RBA, “Residential construction activity will remain subdued over the coming year, which will place upward pressure on home values.”
“2020 looks like being the low year for the residential construction sector”, he added.
He further notes that there is a “sizeable downturn underway in the residential construction sector brought about by the fall in demand for housing over the last 18 months.”
“Demand is still continuing to increase, given population growth. While there are pockets of oversupply, particularly in parts of Sydney where the vacancy rate is high, they are not widespread.”
“Prices have turned in Melbourne and Sydney (though not Perth or Darwin), which probably brings the investor back into the market”, he added.
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