SQM Research Predicts 10%+ Growth in Sydney & Melbourne in 2020

Louis Christopher from SQM Research predicted that house prices in the two largest capital cities will have double-digit growth in 2020. That is a quite bullish prediction. Louis is probably the most reputable property market analyst and forecaster in Australia with a good track record in housing market prediction. I think it is quite possible that his prediction is right, but I believe in the next 5 years the annual growth still will be below the historical average, maybe 2-3% per year. This is because I believe the two markets are still quite overvalued. I am not comfortable in investing in today's Sydney ad Melbourne markets and will keep investing in other states. What is your thought on the forecast?

 

I suspect his forecast is conservative....

Mr Christopher is predicting 17 percent gains for Melbourne and 16 percent gains for Sydney. "The price rises could be even stronger if the Reserve Bank does cut interest rates again, as is currently forecast by most economists and priced in by financial markets."

The RBA is almost certain to cut rates (jobs fell for the first time in three years today), hence lower interest rates will send the boom to greater heights.

I would say 20%+ in both Sydney and Melbourne easy next year and again in 2021.

 

I wish your prediction, 20%+, is right, so I can enjoy the large capital growth of my property in Sydney. However, the price of a product will eventually return to its intrinsic value. This was why we had a correction in Sydney and Melbourn in the last two years after a massive boom.

 

What did he predict in 2018?

 

In September 2017 after APRA tightening of IO loans he predicted +4% to +8% for Sydney and +7% to +12% for Melbourne. Actual results -6.5% for Sydney and -3.2% for Melbourne.

https://sqmresearch.com.au › ...PDF...om and Bust Report is out now! - SQM Research

Of course this is a bit unfair and you could do this with any property forecaster since all their records are utterly awful. But that's the point. These predictions whether good or bad are completely and utterly useless.

 

Wrong, the downturn was carefully orchestrated by APRA and the royal commission into banks. It's very hard to work out the intrinsic value of land, I don't even know if there is such a thing..

 

I respect and appreciate his predictions. And maybe they will happen. But at this juncture they simply defy basic logic.

How the devil can these two cities see that kind of price-growth again with stagnant wages and increasing unemployment/under employment?

Sure, some HK escapees will find a way to get their money out and into 'safe as houses' Sydney and Melbourne (and thus possibly a bump in selected HK-favoured suburbs), but the general foreigner-restrictions remain in place.

That's the only green shoot I can perceive as a driver for dwelling-value rates increasing that much over the next year or so.

Even then, the last round of big mainland Chinese buying, saw for all the asian-desired-school-catchment-zone areas pretty much hit maximum student capacity (with many schools now having long multi-year waiting lists...) so even if they could afford to spend 'overs' to secure their desired school-catchment house; they may be unwilling to buy if there's so actual room for their kid in that school and the waiting list is long.

Sure if mortgage interest rates come down that may be a perceived growth driver but the reality is, lofty deposits are still required and if prices run upwards, that'll keep households in the deposit-saving trap longer, thus delaying their ability to participate in these auctions anyway.

Perhaps a green shoot is the mass-downsizing of the retiring boomers who are selling up and sea/tree changing out of Syd and Mel to enjoy their older years in quieter places? Perhaps that'll free up lots of stock at the same time and dump lots of houses on the market to inspire a younger-buyer frenzy?

 

Bring it on.. love that RBA is starting to print money and make interest rate to 0.5%.

Reserve Bank gets the money printers ready

I bought my first property in 2005/2006. My friends are still sitting on sidelines for the last 15 years citing "defy basic logic of economics 101". ☺️

 

I believe it is too hard to determine the intrinsic value of a property and I do not know how that can be calculated. However, I believe an algorithm can be built that takes into account of historical property data, prices of properties in various states, supply, demand, household income, construction costs, etc. However, I admit these calculations and predictions could be quite subjective.

 

Thanks for the comment. I followed the property market predictions by different organizations in the past few years and find that his predictions are the most reliable. He did predict the 2018 property market incorrectly partially because that APRA tightened the lending more than many people expected and its follow-on impact. The market is partially driven by people's emotions, which are almost impossible to predict. I do not use his predictions as the main guidance for my property investment, but I do a lot of research by myself before I make an investment decision.

 

I think your thoughts have lots of merits. It is hard for some people to trust his prediction because of the negative factors in today's market. My thought is that his prediction is possible but I would not invest in Syd or Mel because of potential double-digit growth next year because I believe it is not sustainable. I view property investment as a long term game.

People's emotions are one of the main factors that affect the property market. Some sellers are waiting for the prices to go up further before they sell. This reduces the stock on the market and can fuel up the market quickly. Some buyers are afraid of missing the boat and jump into the market to secure the deals. All in all, the price of an asset will center around its true value in the long term.

 

Could this happen again in 2020?

According to CoreLogic house prices will have recovered to boom time levels in January 2020.
Sydney property prices could hit new highs ‘within six months’, says CoreLogic’s Tim Lawless

This will see us enter 2020 with record high property bubbles in Melbourne and Sydney, and surging growth. Very much the same environment that forced APRA to first introduce macro-prudential controls.

 

Good comment.

I agree that any big bump over 2020 will likely be temporary only. The entry/exit costs into Syd and Mel property are so gargantuan that even if you buy in early 2020 and get that one bump in value-growth, what do you then do if there's another 5 years of flat (or negative) growth and flat (or negative) rental growth? You can't really sell because the entry/exit costs would mean you'd still be behind.

 

That prediction was well after APRA tightened so he can't use that as an excuse. Honestly I've not looked at his record compared to any others in any detail. He might be better than most but the point is that even he has had horribly bad forecasts in the very recent past. I just wouldn't put any faith in short term forecasts from anyone.

 

That is a good point. The cost of buying and selling, negative cash flow and tax can quickly eat up the double digit capital gain. I'd rather invest my money in other cities with more long term potential and better yield.

 

I would not heavily rely on the short term forecast either since I am investing in the long term. However, this sort of forecast could be very valuable for people who are looking at buying a family home, considering selling, working on a development project or planning for a flipping deal. For example, a friend of mine completed a $3M+ duplex project in Sydney. He has just rented it out instead of selling it. He is looking at selling it mid or later next year to maximize his profit.

I tend to trust the forecast by Louis Christopher from SQM Research more than myself as they spend lots of time analyzing the market and predicted the market trends relatively accurately over the years. I also look at the forecasts by organizations with reputable analysts. If 80-90% of them are predicting the same thing, I would trust the prediction more.

 

Without getting into too much detail, high level, a continued expansion of Sydney and Melbourne price rises make sense. The debt cycle has turned, and the debt goes into property assets. More money in the system, no corresponding increase in supply = nominal price rises.

With rate cuts, the value of assets are simply recalibrating to a lower price of credit. Sydney and Melbourne still feel the brunt of this (both up and down) vs other cities given the far stronger employment markets in these two cities.

Demand should outstrip supply significantly next year. Prices will probably rise a lot in the first 6-12 months, and beyond that will probably depend on further rate cuts.

 

You are spot on....I have made over 500k in the last 3 months..I am more worried what will happen when the party stops...I would rather have more sustained stable increases. Too many people have not seen the severe down side....

 

It is definitely better to have a steady lower growth which would serve the overall economy better. The lending environment is still much tighter than what we had in the previous boom. There is an oversupply of apartments and house/land packages in some pockets. In addition, the economy is not in great shape. Therefore, I think the overall environment is very different from that in the boom time.