As we come out of the busiest period of the year for real estate sales, the end of the housing boom has already been called by some economists.
“2018 looks set to be an interesting year for the residential market across Australia,” says CEO of view.com.au, Enzo Raimondo. “We are already seeing changes to both Sydney and Melbourne in terms of selling prices, clearance rates and sales numbers, which are all starting to trend down marginally. There should be some reprieve for first home buyers, as prices start to stabilize in 2018.”
The year that was…
2017 saw a continuation of the eye watering growth in dwelling values that we have watched for the past five years. Dwelling values in Sydney increased 72 per cent over this period, and as of the end of the September quarter this year, had grown 10.5 per cent in a year. Melbourne had similarly impressive figures of 57 per cent growth in dwelling values over five years and a 12.1 per cent increase since September 2016.
Other areas of the country balanced these surging prices in Melbourne and Sydney. Brisbane dwelling values increased only 2.9 per cent in the 12 months to September, 5 per cent in Adelaide, and 7.8 per cent in Canberra. Meanwhile, Perth saw a decrease of -2.9 per cent and Darwin a decrease of -4.7 per cent. Hobart was the dark horse, seeing a 14.3 per cent rise in dwelling values over the year.
Housing affordability is still a major concern and talking point, which led the Federal government to take further measures to stem the overheating market earlier this year.
“The actions by the Australian Prudential Regulation Authority (APRA) on risky lending practices have also had an effect and we should see this continue into 2018,” says Enzo Raimondo.
According to ABS figures, following the announcement of APRA’s measures in March, the proportion of first home buyers securing new home loans has bounced back up to 17.4 per cent after it had been gradually falling well below 15 per cent since the GFC.
Since 2011, RBA interest rates have been at a record low and remains at 1.5 per cent. Despite some predictions that this may change in 2018, the vulnerability of mortgage holders in financial stress coupled with the expectation that the economy won’t begin to show signs of real growth until 2019/20 indicates that 2018 won’t see any significant changes to the RBA interest rate, if any at all.
In Melbourne’s outer-east, Director of Methven Real Estate, Greg Earney, has seen a split in the market following changes to stamp duty laws in Victoria. Stamp Duty Tax is abolished for first home buyers who buy into a property with a value under $600,000, while the duty is phased for those who buy properties between $600,001 and $750,000.
“With the current stamp duty exemptions there has been a frenzy to get into the market. However, it appears that in the outer eastern corridor first home buyers are seemingly tapped out around the $670,000 – $680,000 mark.
“What this is creating is a market that is running at two speeds, with the higher end of the market appearing to be slower and properties taking a little more time to sell, while at the other end properties that are priced under this $670,000 mark are experiencing massive demand.”
The year to come…
2018 will undoubtedly prove to move in favour of buyers, with affordable options for first home buyers in markets such as Brisbane and Hobart, as well as investment opportunities for inner city units in both Melbourne and Sydney.
Bradley Brown, Director and CEO of Fletchers, notes that this shift will force vendors rethink how they approach the market.
“We expect that 2018 will still be a good year in real estate; with interest rates remaining historically low and strong demand maintained by steady population growth.
There will be a more gradual rise in the market as buyers become more conservative with price judgments but properties will still sell. However, they may stay on the market longer and it will become even more important for properties to be well-marketed and for vendors to listen to buyer feedback and be realistic about their expectations.”
While it is generally expected that the housing boom will experience a gradual downturn in 2018, the two biggest markets, Melbourne and Sydney, may perform differently from each other.
“Both Sydney and Melbourne are already seeing changes to their respective markets,” says Enzo Raimondo. “An oversupply of units in both cities will likely impact price growth of high density dwellings within the inner rings but this is likely to be felt more in Sydney. Melbourne’s undersupply of houses should keep prices stable, despite a softening of the market. This should favour first home buyers and investors alike.”
In the 12 months to June this year, dwelling value growth was focused in the Middle and Outer rings of Sydney and Melbourne, which is expected to continue into 2018.
For first home buyers and investors in Sydney, 2018 may be a good time to invest in units in anticipation for potential economic growth come 2019/20 as the economy moves away from its reliance on the resource sector.
Compared to Melbourne’s more gradual softening, Sydney may experience a more dramatic deceleration of house growth as dwelling undersupply is reduced by an increase in completions. A report published by QBE (produced by BIS Oxford Economics) this year suggested that there are also some signs of an increased net migration away from Sydney, further decreasing demand.
While Melbourne may not match Sydney as far as median house prices are concerned, all of this does indicate that in 2018 Melbourne may make some headway in closing the gap between the two markets.
After more data to make your own 2018 property market predictions? Check out our deeper look into Melbourne vs Sydney property.