The man who predicted Sydney’s house price boom in 2013 has some good news for property owners. His message: dwelling prices will cool down in 2016, but there won’t be any market crash in 2016.
It gets better than that. Owners in Melbourne are in line to see dwelling prices rise by 13% next year. And for those waiting on a major crash in Sydney? Don’t bet on it. The worst estimates still put the city on pace for at least 3% growth next year.
According to SQM’s Louis Christopher, that still leaves the national market growing at the slowest rate since 2012. But any growth is better than decline.
Over the past year, national prices are up by 9.8% on average. SQM predict price growth slowing to between 3% and 8% in 2016. Most of that rests on Sydney’s shoulders. The harbour city grew by a staggering 18.9% in the year to June. Not only is a repeat unlikely next year, but its best hope is for 9% growth according to SQM.
Christopher expects rising prices in Melbourne to pick up some slack. Not enough to offset the decline in Sydney’s market. But enough to keep the national market growing throughout 2016. He explains:
‘[SQM] forecast the national residential housing market will slow down in 2016 predominantly as a result of a slowing Sydney housing market. However, we do not believe the market will record a fall in prices for the year.’
The property owners among you in Melbourne could be in for a windfall next year. One way or another, Melbourne’s expected to outperform Sydney by some distance.
Already there are signs Sydney has passed the baton to Melbourne. Dwelling prices in Melbourne grew by 2.4% in September. That was in sharp contrast to Sydney’s market, which saw no growth during the same month.
If SQM are right, then we’ll see this takeover complete by next year. Price growth in Melbourne, at 13% in 2016, would raise concerns about the market. Just as Sydney faced questions over a potential housing bubble this year.
Whatever happens, 2016 won’t be as good to house prices as 2015 was. That much is clear.
The Aussie economy is slowing. Banking regulations targeting investors, and now owner occupiers too, are in full swing. Population growth, key to demand, is slowing too. All these put pressure on housing demand.
But that doesn’t necessarily suggest a crash is on the way either. Christopher reckons a weaker dollar, low interest rates, and Melbourne’s rise will keep the market growing.
Yet that all depends on conditions remaining favourable. That’s a big if looking ahead. The risks for the housing market are the same as those affecting the broader economy. As Christopher notes:
‘One of the key risks to the housing market over the medium to long term is the looming threat of global deflation, and this is quite a danger to our markets here given the level of debt in the housing market right now, which we note has risen again against incomes to be at all-time highs.
‘This threat became all too apparent this week when Westpac lifted their variable home loan lending rate. For 2016 we believe the RBA has some ammunition to offset this looming risk. However, we are concerned [for] their ability to handle the issue over the medium to long term’.
Depending on which way the economy goes, the housing market won’t be far behind.
Three scenarios facing house prices in 2016
What can you expect next year to bring in terms of house prices then?
SQM have done some number crunching. They’ve come up with a range of forecasts, based on three specific scenarios. They’ve based their outlook on three conditions: interest rates, the economy, and the dollar.
The first scenario assumes that the RBA will cut interest rates by 0.25% by March 2016. The economy will remain stable, with the Aussie dollar falling to US$0.60.
Under this scenario, SQM forecast Sydney dwelling prices rising by 4–9%. That’s not shabby. Especially for a market that recorded no growth in September. But it falls well short of Melbourne. SQM predicts the Victorian capital growing between 8% and 13% under this scenario.
Elsewhere, other major capitals can expect decent growth too. Brisbane dwelling prices could climb 5–8% for the year. Adelaide may grow between 2% and 5%. The only major city not expected to grow is Perth. WA’s capital suffers from the ongoing fallout from weak commodity prices. Because of this, SQM sees its housing market declining by 4–7% next year.
The second scenario is like the first, only worse. It assumes the RBA cutting rates by 0.50% prior to June 2016. What’s more, it accounts for a struggling economy, with the dollar at US$0.55.
In that circumstance, SQM predicts Melbourne dwelling prices booming by 10–15%. The 0.50% cut would leave rates at 1.5%, boosting home loan demand.
Sydney’s prospects wouldn’t change much, with growth forecast of 5–9%. For Brisbane, the estimate is between 6% and 9%. Adelaide: 3–6%.
Meanwhile, Perth would still struggle. But under this scenario prices might ‘only’ decline by 1–6%.
The third scenario is what you might term as overly optimistic. For that reason it’s the one with least chance of panning out. It assumes no rate cuts, a turnaround in the economy, and the Aussie dollar at US$0.80.
In this circumstance house price growth would be most consistent. But it’d also be the lowest on average among our three scenarios.
Melbourne’s dwelling prices would grow at between 4% and 7%. Sydney: 3–7%. In fact, apart from Darwin, every city would see growth in a band between 2% and 7%.
You shouldn’t hold out for this taking place though. It’ll take some effort for the economy to turn around. Especially since so much of it depends on a strong rebound in China. That’s hard to see with Chinese growth dipping below 7%.
There is however one common denominator across all three scenarios: Melbourne. As Sydney’s market stalls, Melbourne is poised to become the driver of national house price growth.
Contributor, The Daily Reckoning
The Daily Reckoning’s property expert, Phillip J. Anderson, is a bull when it comes to the housing market. He’s maintained all year that house prices are set to boom over the next decade.
If you’re an investor worried about property bubbles, Phil’s words will provide you with comfort. We don’t always agree on where house prices are heading at the The Daily Reckoning, but it’s worth getting both sides of the story.
Phil’s 20 years of experience as a property analyst and advisor has given him a keen sense for where the property market is, and where it’s going. He predicted a housing market crash in 2008. He also went against the mainstream in 2009, saying house prices would go on to boom this decade.
He was right on both accounts.
In a free report ‘Why Australian Property is on the Verge of a Decade Long Boom’, Phil guides you through this coming decade. He’ll show you the right time to buy property at its cheapest, and how you can use this to time your investments. To find out how to download his free report, click here.