2017 predictions on how Australian house prices will perform
27 Dec 2016
It may not hit the boomtime peaks of 2013, but a survey of property analysts shows most are predicting solid growth in the price of houses in 2017. It’s a different story for apartments, and indeed for all property in “gloomtime” cities Perth and Darwin where analysts have consistently predicted more price falls.
But if you’re in a house in Sydney or Melbourne, you can rest easy. After four strong years in which prices in Sydney and Melbourne grew by 67 per cent and 46 per cent respectively, according to research house CoreLogic, it seems we haven’t reached the end of the run just yet.
“We literally had our biggest week this year in numbers and value in mid December,” said buyer’s agent Simon Cohen of Sydney firm Cohen Handler.
“I think the market will remain pretty strong.”
But if you have properties in Perth or Darwin or even Adelaide, the prognosis is not positive. In mining regions, CoreLogic’s head of research Tim Lawless said there’s no sign of them climbing out of a hole.
With the Holden production line due to close in 2017, Adelaide’s economy remains weak as few Australians are choosing to move there, BIS Shrapnel Residential Property Senior Manager Angie Zigomanis said. “There’s more downside there than upside.”
But in between the two extreme ends of the property spectrum lie some surprising nuggets of opportunities – Canberra and Hobart.
“Like the eastern seaboard vs Western Australia, there is the property market of Hobart vs the rest of Tasmania. There’s something about Hobart that’s attracting people there and the main demographic is not retirees,” Mr Zigomanis said.
“It’s the people who are winding down.”
The strong Sydney and Melbourne markets have allowed these wealthy Australians to cash out of their properties and buy in seachange cities such as Hobart, much like what happened in the last boom of 2000, he said.
Likewise Canberra is expected to roar into action after a return in government employment and a steadier economy following the end of the federal election in July.
Unlike the past few years, the headline buyers in all markets in 2017 are likely to be local – investors, owner occupiers, or first-home buyers – and less by foreign buyers, analysts say.
Forecasts for national capital city price growth range from 1 to 12 per cent.
Top of the prediction league table was property research group SQM Research’s call of a national price growth of between 8 and 12 per cent, assuming the Reserve Bank of Australia cuts the cash rate by 0.25 percentage points in the middle of 2017.
If that happens, SQM says Sydney prices may leap by as much as 18 per cent, followed closely by Melbourne at 17 per cent. If the cash rate remained unchanged in 2017, prices would still rise between 6 to 10 per cent.
“Affluent areas tend to be driven by the prosperity of local economy. And right now, both Sydney and Melbourne have the fastest-growing economies in the nation,” SQM managing director Louis Christopher said.
BIS Shrapnel and CoreLogic’s forecasts were more conservative. CoreLogic’s Mr Lawless said the outlook for 2017 was “becoming increasingly challenging to give direction on”.
“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,” he said.
Mr Lawless expects Sydney and Melbourne prices to grow between 9 and 10 per cent in 2017 while Perth and Darwin would continue to lose value.
BIS Shrapnel has called a low 1 to 3 per cent house price growth across the national markets, mainly held back by falling apartment prices in Brisbane, Melbourne and parts of Sydney. For houses, BIS Shrapnel said prices would rise in all capital cities except Perth and Darwin. Sydney and Melbourne will top the chart at 4 per cent.
AMP Capital Chief Economist Dr Shane Oliver remains bearish on apartments.
In the next two years, Dr Oliver has reaffirmed his prediction Sydney, Melbourne and Brisbane apartment prices will fall as much as 15 to 20 per cent because of the “massive multi-dwelling building boom”.
While Melbourne and Brisbane apartment prices will fall evenly throughout the city, Mr Oliver says Sydney will have pockets of price falls in Parramatta, inner west Sydney and Bankstown.
“There’s a [supply] indigestion problem, but Sydney won’t have a supply problem for another two years,” he said.
Including houses, he thinks national capital city price gains will slow to around 3 to 4 per cent.
Property Investment Professionals of Australia chairman Ben Kingsley says with borrowing rates edging up and negative gearing still a political target, investors face uncertain times.
“But there are still plenty of opportunities to be found for investors … the long-term fundamentals of well-selected property remain strong.”
On the other hand, rising prices spell more bad news for housing affordability.
“All levels of government need to take responsibility – which is why we need a deal between the Commonwealth, states and territories to incentivise reform to fix housing supply,” Property Council Chief Executive Ken Morrison said.
In Sydney, first-home buyers and local investors would continue to fossick in growth suburbs, while wealthy baby boomers, mainly in the form of downsizers and empty nesters, would flood the boutique and inner city suburbs in 2017, Colliers International NSW Residential director David Chittenden said.
The appetite for apartments will be replaced by one for houses and middle housing such as townhouses, Mr Chittenden added.
“In 2017, we expect to see greater demand for terrace and town home product, in the wake of ever-reducing land lot sizes, coupled with the desire to live as close as possible (affordable) to commercial amenity.
“High quality master planned projects in primary locations should also perform well, such as Randwick.”
Melbourne could well surpass Sydney as the growth city, some non-traditional punters have said.
Tabcorp’s online website Luxbet, which is taking bets on which capital city will take the gong for the biggest capital appreciation for 2017, is paying the highest odds for Melbourne at $3.
Corelogic index already shows Melbourne catching up to Sydney with the year-on-year price increase at 13.39 per cent. Sydney prices have risen 14.53 per cent.
But the one to look out for in Melbourne are apartments. BIS Shrapnel said apartment median prices could fall by up to 3.5 per cent in 2017.
Brisbane’s housing market remains the most controversial.
JLL’s latest research says a large supply of apartments in Brisbane market over the next two to three years coupled with below average population growth will have short-term impacts.
“Capital growth is expected to be limited in the short to medium term, and we could see downward pressure on rents,” JLL Head of Residential Research Carol Hodgson said.
The Real Estate Institute Queensland September quarter results show falling median prices as a result of the apartment supply, but says with possible job growth from employers such as the Adani Carmichael coal mine, price falls could be mitigated.
“Jobs mean growth and the regional communities of Townsville, Mackay and Rockhampton have been declared as hubs for the Adani workforce, which is great news for those real estate markets,” REIQ chief executive Antonia Mercorella said.
Hobart and Canberra
The are good prospects for Canberra and Hobart, both Corelogic’s Mr Lawless and BIS Shrapnel’s Mr Zigomanis agreed.
“The smaller capital cities, where the pace of capital gains has been trending higher are likely to see a continuation in these trends as investors start to look more favourably at markets with a higher yield profile that are also earlier in the growth cycle,” Mr Lawless said.
Hobart may be attracting wealthy east coast property buyers, but Canberra is attracting returning government workers.
“Canberra is strong in terms of construction and its public sector return and the spillover from Sydney [property buyers] will continue to 2017, [from 2016],” BIS Shrapnel associate director Kim Hawtrey said.
Dr Oliver said Canberra and Hobart are likely to get about a 3 to 4 per cent increase in house prices.
Analysts believe Adelaide house prices will go “sideways”.
“There just isn’t much happening in the housing market. There are no rises. There are no falls. It’s just flat for both the sale market and the rental market,” wrote SQM Research’s Mr Christopher.
With one of the highest unemployment rates in Australia, Adelaide continues to remain on the “downward trend”, he said.
JLL’s November residential report confirmed listings of housing property have fallen while rents have remained steady.
Perth and Darwin
Analysts and most investors hold the view that prices in Perth still have some way to go – down.
The problem in Perth has been exacerbated by too much supply against a falling population. The RBA said Perth property developers failed to respond to the dwindling population, triggered by the mining downturn, a fact illustrated this month when one went belly up.
Darwin’s issue lies in its soft economy and rising unemployment. But Mr Christopher is of the view Darwin’s decline could be close to the bottom.
“Well, certainly we are closer to the bottom than two years ago. Presuming a new Labor government manages the economy reasonably well, there is every chance that the housing market could bottom in later 2017.”
Regional and lifestyle areas
Wealthy Sydney and Melbourne buyers have started to diversify into the lifestyle markets such as holiday homes, farms, and areas “good for Airbnb rentals”, Colliers International said.
“Luxury country homes in regional areas are also becoming a desired asset by the high net worth client. Social media shows how engaged they are in this space and sharing it with their friends while perhaps also luxury holiday letting on Stayz or Airbnb. They delight in showing their vegetables growing, the farm dog and horses etc,” Colliers’ Deborah Cullen said.