Stable growth forecast for 2019 property prices

Stable growth forecast for 2019 property prices

Domain has forecast that the value of Australia’s home loans should grow at a modest pace in 2019 and 2020, though there are several potential risk factors that could influence these predictions.

The report from Domain economist Trent Wiltshire found that property prices trended downwards over 2018, due to a combination of:

  • investor caution;
  • tighter bank lending practices;
  • weak sentiment, and;
  • new housing supply.

Looking to the future, the value of Australian home loans is forecast to slowly pick back up again in 2019 and 2020 as banks and borrowers adjust to these conditions, backed up by:

  • projected strong (if slowing) population growth;
  • lower unemployment;
  • faster wage growth, and;
  • increasing first-home-buyer activity.

House price forecasts*

City 2018 (estimate) 2019 (forecast) 2020 (forecast)
Australia (combined capitals) -6% 1% 4%
Sydney -8% 0% 4%
Melbourne -9% -1% 4%
Brisbane 0% 4% 5%
Perth -5% 5% 3%
Adelaide 2% 2% 2%
Hobart 12% 2% 2%
Canberra 2% 4% 4%

Unit price forecasts*

City 2018 (estimate) 2019 (forecast) 2020 (forecast)
Australia (combined capitals) -3% 2% 3%
Sydney -3% 3% 5%
Melbourne -1% 1% 1%
Brisbane -6%% 3% 3%
Perth -6% 2% 2%
Adelaide -1% 2% 2%
Hobart 0% 0% 3%
Canberra -5% 2% 2%

*Annual change to December quarter. Darwin excluded due to small volumes and market volatility. Stratified median house/unit price forecasts.

While these predictions paint a picture of growth for Australia’s house prices, factors that could limit this growth include:

  • The RBA raising the nation’s cash rate earlier than expected
  • Further tightening of mortgage lending regulations
  • Investors being forced to switch from interest-only home loans to principal and interest home loans that they can’t afford
  • Lower population growth
  • Chinese economic slowdown

Factors that could lead to Australian house prices growing faster than the Domain predictions include:

  • Fast slowdowns in housing constriction
  • Government intervention to support the property market
  • Improving sentiment from economic growth

Mr Wiltshire said that a potential wild card in the deck would be the 2019 federal election. An ALP victory could lead to the introduction of new policies limiting negative gearing to new properties (with all existing negatively geared properties ‘grandfathered’) and slashing capital gains tax discounts on investments from 50% to 25%:

“Property prices will most likely fall in response to this policy change as fewer investors will be wanting to invest in established residential property.”

“But there is also the possibility that if the ALP proposes a start date of 1 July 2020, this may bring forward some investor demand to take advantage of the grandfathering proposal, and actually push up prices in 2019 and early 2020, with prices being pushed down by the new policy in 2020-21.”

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