Sydney and Melbourne house prices are expected to go up over the next 12 months. Across all capital cities, prices might surge up to 11 per cent even without further interest rate cuts. These are what the Christopher’s Housing Boom and Bust Report for 2020 show.
Sydney’s house values may jump between 10 and 14 per cent while Melbourne house prices may rise up to 15 per cent.
Canberra housing prices are expected to grow by up to 7 per cent, Brisbane by 6 per cent, Adelaide by 4 per cent, and Hobart by 5 to 8 per cent.
These are values we can expect without rate cuts and intervention from the Australian Prudential Regulation Authority (APRA) and if the economy continues its estimated growth following the three rate cuts this year.
Take a look at the table below.
SQM Research‘s managing director Louis Christopher believes this will be the last price growth for Hobart and investors should consider taking profits in Hobart this year as an increase in housing supply in 2020 is expected.
Perth property prices are also forecasted to grow between 3 and 6 per cent. There is a recovery in the rental market this year and the effect could roll over to house prices.
Of all, Darwin is the only city expected to have price falls in 2020 due to the weak economy and excess in housing supply.
House Values to Peter Out by 2021
Mr Christopher credits the sudden increase in house prices at the end of this year to interest rate cuts, lifting of housing credit restrictions, and population growth. These, he thinks, will play a big role in Australia’s housing market in 2020.
The housing market in 2020 will be strong but the growth may not be sustained through the following years. The current housing market recovery will be vastly different from the housing boom of previous, in 2013 to mid-2017, where it had lasted for more than four years. The current surge in the market is expected to dwindle by 2021.
Sydney and Melbourne House Prices Surge
One cause for concern is that once it became obvious that Sydney and Melbourne house prices are rising by a double-digit growth rate annually, APRA will step in and slow down the rapid upturn.
This is unlikely to happen next year, according to Mr. Christopher. However, all signs point to it happening by 2021 and that could trigger a downturn just like it did last time APRA intervened, Mr. Christopher said.
Another worry is Sydney and Melbourne house prices being too high and properties being overvalued. Both Sydney and Melbourne house market has bottomed out at a higher value than the previous downturn.
In the last boom, Sydney and Melbourne house prices were fairly reasonable and presented a lot of opportunities. Mr. Christopher said this is exactly the reason why that boom lasted for a long time.
Melbourne House Prices Cause for Concern
By SQM Research’s approximation, Sydney property is about 21 per cent over-valued while Melbourne house prices are higher by 27 per cent than it should be.
But because the over-valuation in Melbourne is bigger than Sydney, Melbourne becomes a concern. It will mean Melbourne will be more susceptible to interest rates effects, economic downturn, and APRA’s intervention.
Shane Oliver, chief economist with AMP Capital said lending practices are still strictly controlled which would also limit the depth and duration of the upturn.
Further, he believes that Australians’ attitude towards debt has changed. Australians nowadays are more cautious and that would undoubtedly limit the degree to which people will take on more debt to buy houses.
If over-valuation continues and the APRA steps in, it will become the trigger that might cause Melbourne house prices to fall and the housing market downturn to begin.
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