Sydney property prices are tipped to rise by more than $216,000 this year – while experts say risky loans remind them of the GFC

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  • Economists have predicted Australian property prices will continue soaring throughout the remainder of the year on the back of record low interest rates.
  • Sydney is expected to lead the market higher, with prices finishing the year 21%, or $216,300, higher.
  • Meanwhile some economists warn the Morrison government’s loan guarantee scheme will likely put vulnerable buyers at risk, pushing them into a market already flooded with cheap credit.
  • Visit Business Insider Australia’s homepage for more stories.

Australia’s most expensive city is about to reach new heights, as economists anticipate property price growth to continue through 2021.

Just five months down and homes in five capital cities – Sydney, Melbourne, Brisbane, Adelaide and Perth – are running hot. Prices in each city have grown by 7% or more since the beginning of the year, according to CoreLogic data.

But economists expect we’ve only seen the tip of the iceberg. Weighing in on Finder’s monthly survey, 40 of the country’s top economic eggheads detailed exactly where they think housing markets are going from here, and in a word, it’s up.

Sydney and Perth are tipped to lead that charge, rising another 8% by Christmas. Considering the Harbour City is already ranked as Australia’s most expensive, and one of the world’s most unaffordable, that’s no small feat.

If the next push higher eventuates as predicted, Sydney prices would finish 2021 an astounding 21% higher than they commenced it. In real terms, the price tag on average Sydney home would have inflated by $216,300 in just 12 months – at the same time average wages are going sideways.

“A 21% increase would be the highest annual increase for the Sydney property market in recent history, beating the previous record of a 15% rise in 2013,” Finder head of consumer research Graham Cooke said. “To put that into perspective, prices rose by just 4% in 2020 and 2019, and dropped by 8% in 2018.”

“The current average salary is around $92,034, so if our experts’ predictions are correct, the average Sydney homeowner will earn more than double the annual wage this year – equivalent to a fifth of the average property value through 2021.”

Less bright is the scenario for renters, with the projections to raise serious questions of affordability in Australia’s largest city. Similar price growth last year in New Zealand saw regulators step in to effectively freeze out all but the most incorrigible investors. Lending restrictions of such extremity are less likely to get up here, commentators warn, with homeowners wielding more political influence than renters.

Nonetheless, price growth across the country is mind boggling. Melbourne prices are tipped to finish the year 15%, or almost $121,000, higher. The Brisbane market is said to finish the year 17% higher, growing prices by almost six figures.

Elsewhere, 15% and 13% price hikes are forecast for Perth and Adelaide respectively, adding almost $80,000 and $67,000 to sales prices in each city.

Like Ireland prior to the Global Financial Crisis

The Coalition’s plan for increasing affordability meanwhile has been heavily criticised, with economists anticipating it will only drive prices higher still.

Unveiled as part of the Federal Budget, the Morrison government has promised to guarantee loans for priced out demographics. First homebuyers will be eligible for 5% loans while single parents will only be required to stump up deposits of just 2%.

Given its propensity to flood an already hot market with cheap credit, more than two-thirds of economists interviewed rated the latter scheme as “too risky”, and warned it would only expose vulnerable Australians.

“You’d think we might have learned something from the US experience in the years before the GFC,” economist Saul Eslake, of the Corinna Economic Advisory, said.

“There are dangers inherent to both individual borrowers and the financial system and broader economy, of encouraging people into homeownership with wafer-thin equity.”

Cooke, who hails from the Emerald Isles, agreed it had all the hallmarks of a policy that goeth before the fall.

“With such a small slice of equity in your home, any potential buyers would be very susceptible to falling into negative equity if prices did fall,” he said.

“Encouraging homeowners to get into the property market with only a 2% deposit reminds me of the 100% loans being offered in Ireland in the months before the GFC.”