Australia’s capital city price falls should end this year, and these cities should begin to show some modest price growth in 2020, according to new research by Domain.
Domain economist Trent Wiltshire said there has been “significant” change to the outlook since the November 2018 forecast.
“The start of 2019 was weaker than we expected, with the financial services royal commission, a slowing economy, investor caution and election uncertainty weighing on prices.
“But in recent weeks, a number of changes point to a turnaround in the second half of 2019: the Reserve Bank has cut interest rates with further reductions to come, there will be no changes to negative gearing rules, and the banking regulator has changed a key lending rule that will make it easier for people to borrow.”
But Mr Wiltshire said he is keeping his enthusiasm curbed.
“While low interest rates and strong population growth should support prices, tight lending conditions persist, household debt remains high, which means households and investors are cautious, and elevated prices means housing affordability is still a problem,” he said.
“On top of that, the economy is slowing, with growth in household incomes expected to remain weak.”
Mr Wiltshire said modest growth is anticipated in the key Australian markets.
“Hobart’s boom is petering out, with only modest price growth expected in 2020,” he added.
“The outlook for Perth is also for some modest price growth next year, but the bottom of the market has been called before, so there is a risk that weakness will continue. Brisbane unit prices should stabilise as the apartment construction boom ends, while Canberra’s ongoing building boom will keep a lid on unit price growth in the nation’s capital.
“Property prices have continued to fall in Sydney and Melbourne in 2019, extending the correction that began in 2017, but price declines should end later this year.”
Mr Wiltshire’s key city predictions are as follows:
Home owners should expect prices to bottom out in spring 2019, he said.
“Auction clearance rates are at their highest levels since early 2018, more people are attending open inspections and market sentiment is improving. Strong population growth, ongoing low unemployment and fewer apartments hitting the market will support price growth in 2020.”
Mr Wiltshire said prices should stabilise by the end of the year before growing in 2020, but at a very slow pace.
He said clearance rates are higher, particularly in more expensive areas.
“This is often a sign of a turning point,” he added.
“And there is more buyer interest, with a visible increase in inspection numbers compared to before the election.
“But weak income growth and affordability constraints are why we won’t see a big turnaround in 2020.”
“House prices have been fairly steady with a modest turnaround expected, while unit prices should bottom out after significant falls,” Mr Wiltshire said.
“There are early signs of increased buyer interest, and strong population growth, particularly from interstate, will support price growth.”
Mr Wiltshire expects Perth prices to bottom out later this year.
He said a number of drivers of prices suggest a more positive outlook: population growth is increasing, interest rates are lower, the mining outlook is much stronger and there is growing demand for workers.
“We forecast ongoing, but modest, property price growth for Adelaide,” said Mr Wiltshire, adding that home lending has fallen less in South Australia than in other states, so there may be less of a rebound.
House and unit prices increased by an extraordinary 38 per cent and 31 per cent, respectively, between 2016 and 2019, Mr Wiltshire said, but price growth will slow significantly in 2019 and 2020.
“Stronger population growth and an ongoing tourism boom will support prices, but new housing construction is catching up, which will help limit price growth.”
Mr Wiltshire forecasts moderate house price growth over the next 18 months, but only a slight increase in unit prices.
“Strong population growth, lower interest rates and low unemployment will support prices, as will the Coalition’s surprise election victory, but an ongoing apartment construction boom will keep a lid on unit prices.”