One of Australia's most accurate housing market forecasters says he got 2017 wrong because APRA 'acted too early'

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SQM Research boss Louis Christopher is the first to admit he got it wrong when he forecast Sydney house prices to surge 11 to 16 per cent in 2017.

“We missed on Sydney this year,” said Mr Christopher who was Australia’s most accurate housing market forecaster the last two years in a row according to The Australian Financial Review.

“The Sydney market was picking steam earlier this year. But APRA acted earlier than we forecasted. Our forecast assumed they would step in the market sometime in the third quarter,” he said.

Indeed, the Australian Prudential Regulation Authority announced at the end of March that it had written to all deposit-taking institutions expecting them cut back on origination of interest-only loans – riskier mortgages favoured by investors – to 30 per cent of total lending.

This, combined with the 10 per cent annual growth limit on overall investor lending already in place, had the almost immediate effect of reducing the participation of investors in the housing market, especially in Sydney where they had dominated, and putting the brakes on rampant house price growth.

With less than a week to go until the end of the year, CoreLogic’s daily index* shows Sydney dwelling prices up a paltry 3.3 per cent, following three months of price falls, a sharp deceleration from the massive 15.9 per cent annual rise recorded by CoreLogic in 2016.

“It’s bit frustrating for us as we did get the direction [of the Sydney market] right,” Mr Christopher said.

SQM Research’s other forecasts are accurate

But with predicting house prices a national obsession, earning those who get it right enormous credibility, Mr Christopher can take heart from getting most of his other forecasts right.

SQM Research tipped capital city house price growth of six to 10 per cent (Corelogic daily index shows a 4.4 per cent rise across its five capital city index) and forecast Melbourne prices to rise 10 to 15 per cent (Corelogic has a gain of nine per cent).

He was also accurate when predicting a three to seven per cent gain in Brisbane (Corelogic: up 2.8 per cent), Adelaide up two to four cent (Corelogic: up three per cent, Canberra up three to seven per cent (Corelogic: up 5.8 per cent to November), Hobart up seven to 12 per cent (Corelogic: up 11.5 per cent to November), Darwin down five to nine per cent (Corelogic: down 5.5 per cent to November) and Perth down 4 to 8 per cent (Corelogic: down 2.3 per cent).

In 2018, Mr Christopher expects house prices to rise between four and eight per cent led by Melbourne (gains of seven to 12 per cent), Hobart (eight to 13 per cent) and Canberra (five to nine per cent). Sydney house prices are forecast to rise four to eight per cent. Perth will tick over into mildly positive territory, with small gains likely in Adelaide and Brisbane.

“Surging population growth is the primary reason why, despite an overvalued Sydney and Melbourne housing market, despite the actions of APRA, we are not having a meaningful correction,” he wrote in SQM Research October Housing Boom and Bust Report.

How did other forecasters fare?

NAB property survey

NAB’s survey of 250 property experts proved a good, if somewhat over bearish forecaster of house price growth in 2017.

It was pretty close forecasting (at the start of the year) capital city house prices to rise 3.4 per cent and was right to expect Melbourne to overtake Sydney as the better performing detached housing market. But NAB’s forecast of a 5.6 per cent rise in Melbourne underplayed the Victorian capital’s much stronger surge.

NAB gets a big tick on Sydney where it forecast a gain of 4.5 per cent and Perth (down 2.7 per cent) and Brisbane (up 1.7 per cent) but was off the mark on Hobart’s double-digit gains.

NAB Group Economics predicts an increase of 3.4 per cent in house prices 2018 and just 2.5 per cent in 2019. Unit prices are forecast to rise 0.5 per cent in 2018 with a modest fall expected in 2019.

“More moderate market conditions reflect a combination of factors which vary across markets, including deteriorating affordability, rising supply of apartments, tighter credit conditions and rising interest rates in the second half of 2018” said NAB chief economist Alan Oster.

Domain (Australian Property Monitors)

Domain forecast a much weaker year of house price growth, which proved accurate. “I think the days of double figure house price growth are now behind us,” said Andrew Wilson, who was Domain chief economist until his recent departure.

Domain forecast tepid growth for Sydney houses of just four per cent, which was almost spot-on as were its forecasts for Brisbane, Perth, Adelaide and Darwin.

But as with other pundits, Domain missed the big boom in Melbourne prices, tipping only a five per cent rise. Similarly a two per cent rise forecast for Hobart was way off.

BIS Oxford Economics

BIS Oxford Economics are leading economic researchers, but their forecasts for Melbourne and Sydney (for the 2017 financial year) were way off the mark.

The think-tank forecast Melbourne house prices to rise 2 per cent in the year to June 2017 as part of study for a QBE Australian Housing Outlook 2017-2020 report, when they were up 13.7 per cent according to CoreLogic.

BIS forecast Sydney’s median house price would rise 1.7 per in the year to June 2017 compared to Corelogic’s gain of 12.2 per cent at the time. Its Brisbane forecast of a rise of 2.7 per cent to $540,000 was accurate with Corelogic showing a gain of two per cent at the time.

Herron Todd White

The national property valuation firm got it wrong when it said it expected “on average double digit growth in Sydney throughout 2017” in its January report, but correctly forecast “substantial growth in property prices” in Melbourne in 2017.

Saul Eslake

One of Australia’s most revered economists, Mr Eslake missed the Melbourne house price surge this year, expecting growth at “more moderate rates”. But he was correct to expect more moderate growth in Sydney house prices in 2017 compared with 2016 and 2015 and that Perth and Darwin would see further price falls.

John McGrath

The founder of McGrath Estate agents and 30-year housing market veteran did not provide an actual numerical forecast for Sydney in 2017, but said the market was “showing signs of plateauing” in the McGrath Report 2017, foreshadowing the major slowdown that did eventuate.

*For the purposes of comparison, we have used the Corelogic figures that are the most up to date. Domain Group’s Australian Property Monitors and the Australian Bureau of Statistics show stronger price gains, but are only current till the end of September.

This article was originally published by the Australian Financial Review. Read the original here, or follow the AFR on on Facebook.

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