In October 2014, we covered BIS Shrapnel's predictions for the three years ahead. Now that so much has transpired – including Sydney’s record boom, Melbourne’s mini-boom and a number of unforeseen lending restrictions that have slowed investor spending – how did these predictions stack up?
And, just as importantly, what are the forecasts going forward?
The biggest surprise has been Brisbane: expected to be the star performer in property circles, Brisbane’s growth has failed to surge at the level that experts were predicting 12 months ago.
Our headline was “Brisbane to outshine with 17 per cent growth over the next three years”, and indeed it possibly might. But so far capital growth has been moderate, with the city recording growth of 4.8 per cent in the 12 months to September (source: CoreLogic RP Data). This was largely influenced by Queensland’s economy, which is still adjusting to the mining downturn.
In my view, I can see a lot of upside in Brisbane’s property market and I think it’s important to remember that a city of this size isn't just one market. Within Brisbane, certain pockets have experienced strong growth over the last 12 months, like Chermside, where median property values have increased by 9.2 per cent (source: propertyvalue.com.au), or Kedron, where apartment values are up 15 per cent.
NAB chief economist Alan Oster is forecasting that Brisbane will continue to grow next year at a similar pace to 2015, with median values to increase by 5 per cent. Across the board this may be the case, but I also believe there will be certain suburbs within Brisbane that achieve double-digit growth in the 12 months ahead.
Sydney’s forecast from BIS Shrapnel was 9 per cent growth over the coming three years. The market not only met this expectation, but it blitzed right through it – in only a matter of months.
The city’s median property price increased an impressive 16.7 per cent in the 12 months to September 2015, according to CoreLogic RP Data, to reach a value of $935,800.
BIS Shrapnel is now predicting a potential correction in Sydney property prices, which it foresees happening in 2017, following a possible increase in interest rates next year.
Over 2015-16, they expect prices to continue to increase by around 7 per cent, before the combination of rising rates and increasing apartment supply “discourages both owner-occupiers and investors, particularly as pent up demand pressures are beginning to ease”.
I'm not yet forecasting a property price correction in Sydney, but I do believe growth will slow from the record pace it’s been keeping the last couple of years.
The Victorian capital was forecast to see minimal growth of 5 per cent between 2015 and 2017, an expectation that was once again exceeded in just 12 months.
The median property price in Melbourne surged by 14.2 per cent in the 12 months to September 2015, almost tripling BIS Shrapnel’s expectation.
But going forward, much like in Sydney, experts are predicting a slowdown in Melbourne’s pace of growth.
John McGrath, CEO of McGrath Estate Agents, predicts growth of 3 to 5 per cent in Melbourne over the next year, before the market will plateau. BIS Shrapnel’s view is similar, if a little less positive, with predictions that Melbourne’s property market will increase by 5 per cent next year, before contracting by 4 per cent in 2017/2018.
The good news for investors
In analysing the last 12 months and projections for the year or two ahead, one thing has become very clear. Predictions are just that: predictions. We are fortunate from the perspective that we have access to huge amounts of data, statistics and modelling to help us make informed investing decisions, but we won’t ever be able to predict future market movements with 100 per cent accuracy.
That said, we can turn to these resources for guidance – and the one overwhelming piece of good news for investors is the broad prediction that interest rates are set to remain low for the foreseeable future.
HSBC chief economist Paul Bloxham is one of many economists who are predicting mortgage interest rates to remain at their current record-low of around 5 per cent for at least the next 12 months, despite the recent out-of-cycle increase from the major banks.
“If interest rates start to rise,” he says, “we think that would have a dampening effect on house price growth, but we don’t think the RBA will move rates upwards until 2017 and maybe beyond that. We’re in for a long period of stable interest rates.”
With any luck, this is one prediction that will hold true!