Since the dramatic decline of nationwide property prices over the past year, everyone seems to have become an expert in foreseeing the future. Who would’ve thought there were so many housing fortune tellers around to guide us through these dark times of property price decline.
There has been so much speculation surrounding the future of Australia’s property market in recent months that you’d be forgiven for having absolutely no idea what to think anymore.
What seems to be the most accurate way of looking at things, however, is that Australia’s housing market has now moved into its next stage of the property cycle. This comes in the form of a fairly significant decline in housing value throughout certain areas, combined with a slow increase throughout others.
So what’s going on?
After many years of strong and steady growth – most notably across Melbourne and Sydney – we are now beginning to see the market calming right down and taking a serious breather. You might have noticed that the fall in housing prices has been closely followed by an apocalyptic dark cloud of much doom and gloom, and yes, times have been rather bleak for the housing market of late… but that doesn’t necessarily mean that Australia needs to prepare itself for some end of the world scenario where people start putting their children down as housing deposits and build new properties out of tin cans and milk cartons. This is simply a new phase in the housing market cycle.
What’s more, not everyone is convinced that we have to prepare for the worst. BIS Oxford Economics – “leaders in forecasting, modelling, and quantitative analysis” – are of the belief that we are in fact, going to be completely fine. How about that? BIS brings out a comprehensive report of Residential Property Prospects each year that provide specific estimates that cover a three-year bracket. Their most recent being 2018-2021.
Now, of course when it comes to predicting the future, nothing is going to be set in stone and we need to take any kind of future forecasting with a pretty bit grain of salt. No one is going to be 100% accurate, and in past, BIS themselves haven’t always hit the nail on the head – sometimes overestimating this or underestimating that – but until humans are able to successfully predict the future (surely that’s not too far off), this is the best that we can do. And honestly, being able to confidently anticipate the ebbs and flows of Australia’s property market over a three year period is a pretty impressive feat.
So let’s delve into the future and see what we’re in for…
For starters, due to the decline, first home buyers have made their way back into the market with a vengeance, taking the place of all the investors who have begun to lose interest. We will continue to see a further decline in housing prices across most of the major cities. This is firstly the result of Australia’s banking regulator (APRA) keeping our money lenders on a tight leash and making it much harder for banks to give out loans left, right and centre. This is further compounded by a dismal growth in wages, continued pressures in affordable living, and an surge in the supply of apartments.
However, this persistent decline is expected to slow during 2019, and in fact completely turn around, with housing prices once again increasing in value. This growth may not be as uniform as we are used to seeing across the Australian property market and may look rather patchy, but it will show growth nonetheless.
For now though, BIS believes that the current slowdown has been the result of APRA’s tougher lending standards, with a particular emphasis on the restriction of interest-only loans. On top of this, BIS suggests that certain states are possibly seeing a surplus in the number of residential dwellings due to record amounts of construction being built each year. This surplus of dwellings can also be found in the oversupply of inner city apartments found throughout most of the major cities.
The most important point that we should take from this prediction though is that the housing market is not expected to crash. So we can all stop stressing about that now. This is going to be stabilised by our record low interest rates, a substantial growth in population, and a fairly consistent economic outlook.
This increase in population growth should help to alleviate the oversupply of dwelling construction, which now stands at around 200,000 completed structures per year. However, this is not expected to translate into rental growth, which is expected to remain at a minimum.
So basically, 2019 is expected to be off to a similarly unimpressive start with the continued, albeit less intense fall in housing prices nationwide, which is then anticipated to ease to a complete stop, making way for the next phase of the property market cycle that will be characterised by moderate growth. Yay. That’s what we like to hear. I mean, it’s definitely a lot nicer than, “start preparing for another recession” and “the housing market is going to crash and burn any minute now”… so yes, “moderate growth” is music to my ears at this point in time.
Following on from that, Domain has predicted that 2019 will be the hardest on both Melbourne and Sydney, making them two of the weakest contenders in the property market for the year. Although by 2020, both are expected to pick up again with an average growth of around 4%.
Since housing prices across Victoria have skyrocketed over 65% in the past 5 years, this should not be seen as disappointing, and now that we have no need to fear any sort of collapse, we should honestly be celebrating. Statistics are showing that by 2021 the median house price is forecast to be approximately $920,000. So yes… seriously well done, Melbourne.
In a nutshell, we may not be popping the Champagne just yet, but there’s also no more need to be concerned about where the market is headed because if these predictions are correct, we can once again relax and put a collective smile on our dials.