This article is from the Australian Property Journal archive
A SLOWDOWN in Sydney’s residential market will provide a drag on national price growth in 2018, as Hobart takes over as the strongest performing city and signs of recovery in the mining cities emerge.
SQM Research’s new Christopher’s Housing Boom and Bust Report tips capital city price growth to come in at 4% to 8% next year, down from the circa 8.5% in the 12 months to the end of September 2017.
However, affordability is expected to worsen.
Managing director of SQM Research, Louis Christopher, said that offsetting slowdowns in Melbourne and Sydney would be first-year property market recoveries for Perth and Darwin, and an ongoing real estate boom in Hobart’s property market.
Hobart is set to record the highest capital city price growth next year at between 8% to 13%, following 14.3% in the year to September.
This will come from a combination of a fast economy and housing supply shortages, that Christopher said are likely to ensure the second year running of double digit price rises.
He said APRA’s actions earlier this year had averted a possible deeper housing correction in Sydney and Melbourne for now.
“Accelerated population growth rates in Melbourne and Sydney have enabled the cities to avoid severe property downturns. On the flipside, housing affordability will likely continue to deteriorate in 2018 with growth in property prices still outpacing wages growth.”
Moody’s Investors Service declared housing affordability had improved slightly through Sydney, Perth and Adelaide.
“The improvement in Sydney, which has resulted from a slight decline in prices from high levels, is a positive development in a city where housing affordability has deteriorated considerably since 2012,” Moody’s vice president Alena Chen.
“However, with affordability deteriorating on average on an Australia-wide basis, we believe housing market imbalances and the large build-up of household debt continue to pose risks to the performance of Australian residential mortgage-backed securities.”
Melbourne and Brisbane affordability had deteriorated.
Christopher said authorities were right to take action earlier this year to restrict investing lending by banks, which otherwise would have resulted in out-of-control housing markets in Sydney and Melbourne, where additional aggressive monetary policy may well have triggered a large fall prices in 2018.
“APRA’s action, which came earlier than I had expected, has meant that the Sydney housing market is cooling sooner than expected. That has meant our Sydney forecast for this year of price growth of 11% to 16% will not be reached and a more moderate 6% to 8% increase in prices can be anticipated for 2017.”
NAB last week downgraded its house price growth expectations for 2017 from 6.7% to 5.1%, which took the capital city forecast down with it from 5.0% to 4.6%, and 2018 price expectations were tempered from 4.3% to 3.4%.
Melbourne’s 2017 figures were upgraded from 7.5% growth to 8.6% as a result of its population gains, and Hobart’s jumped from 4.7% to 10.7%. All other capitals except Perth were revised upwards.
It followed ANZ lifting its 2017 price growth forecast to 5.8%, on the back of ongoing strength in Melbourne’s market. The major lender tipped tighter borrowing conditions and higher interest rates to reign in next year’s growth to 2.2%.
Christopher tipped Sydney to see a soft market in the first half of 2018 before prices start to recover in the second half as the banks likely increase investment lending once again.
“There have been reports of banks investment lending ratios being under the maximum thresholds allowed, so we can expect a rise next year as banks increase investment lending up to this limit,” Christopher said.
Brisbane’s will see slightly stronger gains than the 2.9% of 2017, with growth from 3% to 7%.
“However, the persistent overhang of surplus property listings will hold back property in that city from a faster rate of inflation,” Christopher said.
Adelaide’s growth of 5.0% is tipped to ease to between neutral and 4%. Perth could return to growth of up to 4% after a shrink of 2.9%, likewise Darwin, from a drop of 4.7%.
Canberra’s strong growth of 7.8% will continue, at between 5% and 9%.
The 2018 scenarios are based on no interest changes, a steady economy, no further action by APRA and the Australian dollar sitting between US$0.75 and US$0.85.
Australian Property Journal