After a tumultuous 12 months for Australia’s property markets, 2019 looks likely to be a year of greater stability. That’s not to say prices won’t fall further, but the pace of those falls will slow in the first half of 2019 before we move into another moderate growth phase.
We expect that Sydney and Melbourne will be two of the weakest markets in 2019 and then forecast prices to grow at about 4 per cent in 2020. Brisbane, Perth, Adelaide and Canberra will see modest house price growth over the next couple of years and Hobart house prices should stabilise after rapid growth in recent years.
We expect the falls experienced by Sydney and Melbourne over the 2017-2019 period will prove to be the largest since the late 1980s. But it’s worth remembering these falls have come on the back of an extraordinary period of rapid growth.
Investor caution, tighter bank lending practices, weak sentiment and new housing supply weighed on prices in 2018 and will continue to push prices lower over the next few months. But we expect things to turn around slowly in 2019. Banks and potential borrowers should adjust to new tighter lending standards, with lending growth to resume but at a more moderate pace. Also supporting house prices will be projected strong (albeit slowing) population growth, lower unemployment, faster wage growth and increasing first-home-buyer activity.
A number of factors could result in prices deviating from the forecasts (which are based on the most likely future scenario). The major downside risks include: mortgage rates rising earlier and faster than expected, banks tightening lending even further, slower population growth, forced selling by investors and a slowdown in the Chinese economy. On the other hand, a possible slowdown in housing construction, government intervention to support the market and a stronger economy could mean price growth is stronger than we forecast. The impact of the Labor Party’s proposed changes to negative gearing is more uncertain. The reform will likely push prices lower eventually but may actually support prices in the next 6-18 months.