2017 Australian Property Market Predictions

Domain economist, Dr Andrew Wilson shares his thoughts:
http://static.domain.com.au/domainblog/uploads/2016/12/14102606/2017PropertyMarketPredictions.pdf

 

So he's expecting growth to exceed or remain around this year's levels (according to both Domain and the ABS's annual price growth data), though he's pegging Melbourne to fall from its current level of growth. He's basically calling the bottom for Perth and Darwin, though that seems a wee bit optimistic to me, given continued oversupply and the fact rates are now rising. He doesn't really comment on what he's basing this on. I also don't think Sydney has an "undersupply" of units; according to BIS Shrapnel and Citi the slight undersupply there will be absorbed by next year, and housing starts are at record highs.

Interesting, though. Personally I think a lot will depend on external factors. I think we've seen higher growth this year in Melbourne due to the slowdown in Sydney. I think banks will probably have little scope to cut rates, even if the RBA does, and the RBA is unlikely to "stimulate" again unless we go into recession (this is certainly possible after a negative quarter). The falling Australian dollar will put them in a tough position, because as the US dollar rises, we risk seeing Australia's currently dip significantly. If we go below about 60 the RBA probably won't cut - they may even be forced to raise rates. If we see a downgrade in a few days with MYEFO (about a 50/50 chance according to the major ratings agencies) this will making funding more expensive, which will make it very unlikely for banks to cut mortgage rates - if anything it will force them to hike further.

Good time to fix?

 

That's the third opinion piece I have seen in the last week calling the bottom of market for Perth.

 

When people are calling the bottom of the market, it's not the bottom of the market.

 

Good overview

 

Quote ..
Lower interest rates in 2017 are likely to continue to bolster housing markets..

It could also go the opposite way if the rates start to rise again mathematically socially ..

 

Haha!

Maybe they should call "somewhere near the bottom"

 

I agree. Lower rates haven't bolstered the market this year (unless you believe CoreLogic's fantasyland hedonic growth data, and you shouldn't). Price growth peaked last year and has declined to its lowest growth in 3 years, despite further cuts. The economy seems to have reached a peak in terms of willingness and ability to take on further debt. Additional rate cuts alone won't be enough to reverse that trend. In fact ultra-low rates have not been stimulating global growth for well over a year. The "cut rates, get growth" mantra is no longer effective, so even if Dr. Wilson's prediction of additional rate cuts does happen, price growth will not necessarily follow.

 

Be more interesting to compare previous prediction vs actual, I couldn't find the actual release but found something on AFR.

2015 they predicted 5% growth in Melbourne but actually was 9.1% 12 months to Sept 2016 Qtr.

Source:
Housing prices expected to rise between 2pc and 5pc, says Domain

Extract;
Sydney prices are expected to grow 4 per cent in 2016 after a near 20 per cent growth in 2015. Melbourne will pick up 5 per cent, after a 12 per cent increase during the year.

Source:
Want a house in Melbourne? $800,000 will soon be standard

Extract:
City Sep-16 Qtr change Annual change
Sydney $1,068,303 2.70% 2.10%
Melbourne $773,669 3.10% 9.10%

 

I just had to say, I know Perth isn't Ireland, but the idea it's the bottom gave me a bit of a chuckle. In Ireland "picking the bottom" (puns aside) became a sort of national sport.

IAVI president Robert Ganly commented: "Overall, I would say to people that the market is beginning to stabilise. The worst is over." 2007 (Market was only down about 5% at that stage. Sorry Robert.)

"I'm not an economist but I firmly believe that the market has levelled off and that we'll not see any more price drops in 2008. The recent reform to stamp duty will prove that." 2007, Sunday Tribune (uh… about that...)

"There was a crazy frenzy going on, the market has realigned, it is correcting itself. [...] There's never been a better time to buy [...] The bottom of the market is very very close. [...] I would think there's great value out there now." 2008, Afternoon Show RTE 1 TV (within 6 months prices fell 25%)

"The housing market is at the bottom" 2008, Dermot Ahern, minister (not the bottom)

“Semi-detached house prices have turned the corner and are on the way back up.” 2008, irish Indepependent (nope - collapse had barely begun)

"Even if property prices may not have reached the bottom, delaying in buying could mean that interest rate increases could work out more expensive than the benefit derived from a further drop in property prices," said Rachel Doyle from PIBA 2009 (market was down about 15% at that stage, fell a further 45% by 2012)

"many have hinted at it over the last couple of weeks, but I’m just going to say it: the property market is at the bottom" 2009, Irish Times (prices then fell another 20% that year)

"One of the good things about the steep discount, averaging 47 per cent, is that the residential property market will now be stabilised at a realistic level. You can now buy in confidence that the price is realistic." Irish Independent 2010 (market was down almost 50% at that stage, fell a further 10% - so this one was pretty close)

So - be very careful about picking the bottom in a falling market. It's very difficult to know whether a market will correct or crash. Look for fundamentals: rising wages, rising rental demand, rising population pressure. Those are the best guide to whether a market is fair value. In 2010 rents began rising quickly, wages began rising, inflation returned, most of the oversupply had cleared, banks had licked their wounds - these were great signs the bottom was close. Prices began rising again (fairly rapidly) in 2012.

 

.....but interest rates have started to rise already.

 

Absolutely! In Perth, we do not have rising wages, rising rental demand or rising population pressure. In fact, in the short term, I don't see any upside to Perth at all. With no indications to the contrary, I don't see how anyone could reasonably call the bottom of the market... unless they had something to gain. REAs that I trust are telling me at least 12 more months of pain. They are the ones who should be talking the market up because it is in their interests to do so. So if they are saying it's not the bottom, it's really not the bottom.

 

Me too.
I live in Perth and when you still have an oversupply of product and highest job rate in Australia and the economy WA stuffed it is very unlikely that we are going to see the bottom any time soon.

I would not be waiting for bottom anyway, I would be waiting for clear signs that WA is on the mend, at the moment its a basket case. Anyone who tells it differently I would argue they are not a property investor or have a vested interest in talking it up

MTR

 

But Colin Barnett is over in Asia telling everyone the media is making stuff up and all is swell here? Ffs Colin

 

Yep last time I looked, there is something like 1 new completion for every 1 new resident. So that oversupply of product doesn't look like correcting itself anytime soon.

 

I

In my opinion, it's better to miss the very bottom and buy on an upswing backed by good fundamentals than it is to try to catch a falling knife. I'd avoid Perth until I was very sure.