Australia’s east coast housing upturn is over, according to economic forecaster BIS Oxford Economics.
The resurgence in prices in the current financial year is likely to be short-lived with house price growth to slow or even fall in some markets over the next two years.
The main drags on the market are further tightening of lending to investors and rising new stock levels.
And ahead is a looming oversupply in apartments which, according to BIS Oxford Economics forecasts, will mean a fall in prices in Sydney, Melbourne and Brisbane.
And BIS Oxford Economics, in its Residential Property Prospects 2017 to 2020 report, says new dwelling completions will see most undersupplied markets tip into oversupply.
Apartment prices will suffer on the east coast, as this chart shows:
BIS Oxford Economics says low interest rates and a relatively stable, but subdued, economic environment will prevent too many forced sales coming to the market to drive down prices in an American-style crash.
Angie Zigomanis, BIS Oxford Economics study author, expects all markets to weaken in 2017-18.
Recent moves by the regulator to slow growth in bank lending to investors, via fewer interest-only loans, are expected to cause a retreat by investors.
The rapid rise of new dwelling completions, which is resulting in a growing supply/demand imbalance, will also dampen price growth, especially for apartments in Sydney, Melbourne and Brisbane.
“New apartment completions in Australia will hit a record in 2016-17, which have been largely bought off-the-plan by investors,” says Zigomanis.
“As the apartment buildings are progressively completed, most cities will find that tenant demand will not be sufficient to support rents and consequently values.”
Completions will remain high in the short term. A record 231,700 new dwellings were commenced in 2015-16, and BIS Oxford Economics anticipates a further 218,000 will have started in 2016-17.
This will end three years of 200,000+ dwelling starts per year, well above the previous peak of 187,100 in 1994 and ahead of the the underlying demand for new dwellings of an estimated 172,100 dwellings a year.
By June 2020, the median house price in Sydney is forecast to be 4% lower than in June 2017, or a real decline of 11%. A similar result is forecast for median unit prices.
Here are house price forecasts by BIS Oxford Economics:
“Although the unit market has a greater exposure to the downturn in investor demand, some of the weaker investor demand is expected to be offset by first home buyers entering the unit market to take advantage of the recently-introduced first home buyer stamp duty exemption, which will help to support prices,” says Zigomanis.
Sydney’s median house price this month is estimated by BIS Oxford Economics to be $1.2 million. This is an 11.2% rise for the year, and 81% higher than to June 2012.
The latest BIS Oxford Economics report fits with forecasts released this week by KPMG.
Brendan Rynne, KPMG chief economist, says Sydney will experience a greater adjustment than Melbourne in the next few years but this is likely to be gradual rather than a collapse in the median dwelling price,” says