After years or rollicking growth, led by Australia’s largest cities Sydney and Melbourne, Australian house price growth is expected to slow sharply over the next two years, says ANZ.
In a note released earlier this week, the bank says growth will slow sharply due to higher interest rates and tighter macroprudential regulation, providing some comfort for regulators and politicians who are currently grappling with increased financial risks and growing community concern over housing affordability, particularly in the nation’s largest cities.
“The combination of further regulation and changes to government policy, tighter borrowing conditions and out of cycle mortgage rate increases are all expected to weigh on the outlook for prices,” said Daniel Gradwell and Jo Masters, senior economists at ANZ.
“We anticipate nationwide dwelling prices will rise by 4.4% year-on-year through 2017, before slowing further to 1.9% year-on-year in 2018.”
Recent data from CoreLogic revealed house prices fell across most Australian capitals in May, seeing annual growth across the country slow sharply from levels reported earlier in the year.
The expected slowdown is shown in this chart from ANZ, showing recent growth in house prices across Australia’s capitals, along with where price growth is likely to head in its opinion.
While Gradwell and Masters see a pronounced slowdown across most capitals over the next two years, and even price declines in Perth, Darwin and Brisbane, they suggest that factors such as population growth and housing supply will continue to exert influence on individual markets, continuing the uneven price performance seen in recent years.
“We will continue to see different performances between locations and types of dwellings,” they say.
“Overall, Sydney and Melbourne price growth is expected to remain positive as population growth and demand remain elevated. Melbourne will be hindered by softer unit prices as new supply continues to come on stream, which is also expected to drive overall prices lower in Brisbane.”
And while price growth in Sydney and Melbourne is expected to remain at-or-above the national average, Gradwell and Masters say that some smaller capitals will actually outperform the national average, thanks in part to affordability constraints in larger markets.
“Prices in Canberra, Hobart and Adelaide are expected to grow slightly above the nationwide average through 2018, partly reflecting the fact that price growth in these regions in recent years has been relatively subdued compared to those in the larger capital cities,” they say.
Although those markets are expected to benefit in the years ahead, contrasting to the trend of prior years, the pair believe that prices in Australia’s mining capitals — Perth and Darwin — will still weaken further.
“Ongoing declines in mining investment will continue to weigh on dwelling prices in Perth and Darwin,” they say.