Australian Capital Cities 6 Months Growth Forecast

While playing with some publicly available Corelogic data, I noticed that since the beginning of the year, all capital cities have been growing at different rates but pace of growth has been fairly consistent (see the trendlines closely hugging the actual data). This is a good indication that a strong trend has been established and we are in a long peak that will at-least last another six months if there are no interventions.

Assuming markets grow at the same YTD rate for rest of the year, I have tried forecasting price growth from now until end of the year (using Excel forecast function) and below is the total expected growth if markets don't change gears!

• Sydney - 33% growth through 2021
• Melbourne - 21% growth through 2021
• Adelaide - 17% growth through 2021
• Brisbane & GC - 22% growth through 2021
• Perth - 16% growth through 2021

(These numbers are approximate but should be close to real numbers, 1% + -)

Here is the chart:

 

Interesting. Do you think winter will have slower sales? And the summer months will catchup?

 

Hard to answer this .. traditionally markets are slow in terms of volume but I wouldn't expect much of an impact on prices given very strong rising markets.

 

You don't think that much of the forecasted gains announced earlier this year are already "priced in"? It seems like as soon as the big banks predicted 20% rises in 2021, people immediately started throwing 20% extra at property and so the hungry people bought and the disillusioned left leaving behind a more moderate group of buyers

 

In my opinion, moderate buyers are quickly replaced by high budget buyers being priced out of more expensive suburbs.

For example, a lot of people were priced out of Cherrybrook and ended up buying in Castle Hill and Dural but Cherrybrook got a new buyer supply of people who were being priced out of Beecroft and Wahroonga.

 

With changes to FHOG grants, building stimulus, bank funding costs, there's a lot to change really this month. Now to probably August will start to feel the effects of COVID measures tapering off, will be interesting to see how the market responds.

 

We still have a bit to go

 

Absolutely..

Surprisingly the trajectory of growth in each city has been fairly consistent and in my opinion that’s the result of banks hitting their capacity since earlier this year. If banks were able to suddenly increase their processing capacity to regular market conditions, you will be seeing much greater uplifts.

It’s not only the banks by the way that are proving to be a hurdle.. There are bottlenecks everywhere such as buyers agents not accepting new clients, councils returning searches later than usual, building & pest inspectors unable to provide reports in 5 days, valuers backed up by days, brokers too busy to follow up with banks and ultimately banks sitting on approvals until hours before settlements.

During my current purchase, bank approval came just 20 mins before finance deadline but I was willing to go unconditional anyways.

Despite all the slow down, there is still enough ongoing supply of buyers willing to go through all the hurdles and ready to pay 10-20% above recent sales.

 

Based on Domain median price as I believe it’s the most factual for city medians. I’m lead to believe based on a couple metrics I follow of servicing costs and price to income ratio Sydney will get to 1.45m and it was 1.3 at the end of March. It jumped up 103k in the March 2021 quarter.

 

Are you saying 33% growth from mid June until December 2021?
I am I interpreting this correctly?

 

I think with increased supply in response to the higher prices we will not see the same sort of growth in the second half of 2021

 

Calendar year 2021

 

Extrapolation bias is the tendency to take a recent experience and project that it will continue into the future. For example, if a company has grown its earnings by 25% in each of the past three years, we may project that it will grow earnings at 25% far into the future. Using this simplistic analysis, there are many variables we are not taking into account, and we are likely to be incorrect the farther into the future we project this rate.
https://www.aowealth.com/single-post/extrapolation-bias

 

What has each city done thus far?

 

About half way

 

A bunch of these suburbs have had price growth ~20% over the last 12 months. And Castle Hill is nearly at a 2mill median.

 

Thanks for sharing these .. I didn’t realize RP data suburbs prices were already in for May.

Castle Hill has indeed performed beyond expectations and now even more expensive than Cherrybrook!

 

Castle Hill having a higher median than Cherrybrook surprised me too.

 

Hence the disclaimer that it's just extrapolation.

However, current buyer activity is being speed limited by the system capacity so unless we have a regulatory intervention in next 6 months (unlikely) or an increase in system capacity (unlikely), I would bet that year end growth numbers would look very similar YTD numbers.

 

I think it is too optimistic. The boom is already coming off the boil as supply is increasing. My understanding is the rate of increase is slowing. Still increasing but not crazy as from the data you are extrapolating from.