Australia’s housing market will likely record moderate dwelling price rises in 2018, which will beat a slower rate than the price gains in 2017, led by a slowdown in Sydney.
Research suggests the forecast is for capital city dwelling prices to rise between 4% to 8% in 2018, which would represent a fall from a growth rate of approximately 8.5% over the past 12 months to 30 September 2017.
The rate of property price increases will be slower in 2018, predominantly due to a slowdown in the Sydney housing market, which should continue into the first half of the year.
Melbourne’s property market will also lose some momentum, however, this will only be a relatively modest slowdown, according to predictions in our Housing Boom and Bust Report.
Offsetting a slowdown in Melbourne and Sydney will be first-year property market recoveries for Perth and Darwin and an ongoing real estate boom in Hobart’s property market, which is set to record the highest level of accelerated price growth of any capital city next year at between 8% to 13%.
Brisbane’s property market will experience slightly stronger gains than those posted in 2017, with property prices forecast to rise between 3% to 7%.
However, the persistent overhang of surplus property listings will hold back property in that city from a faster rate of inflation.
The base case for all capital cities forecasts assumes no changes in interest rates next year, a stable exchange rate and the existing restrictions by APRA on investment lending to remain in place.
Through the actions of APRA earlier this year, a possible deeper housing correction in Sydney and Melbourne has been averted, 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.
The authorities were right to take action earlier this year to restrict investing lending by banks.
Failure to have taken action would have resulted in out-of-control Sydney and Melbourne housing markets, where additional aggressive monetary policy may well have triggered a large fall in dwelling prices in 2018 market
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.
Our Sydney forecast for 2018 is for a 4% to 8% increase in prices whereby Sydney will record a soft market in the first half of the year, but property prices will start to recover in the second half as the banks will 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.
Hobart’s property market is expected to remain the fastest growing city in 2018, with the combination of a fast economy and housing supply shortages likely to ensure the second year running of double digit price rises for that city.