HSBC says Australian house price growth will cool in 2017, but without a correction or crash

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Australian house price growth is expected to cool in 2017, but there’ll be no correction nor a crash, says HSBC’s Australia and New Zealand chief economist Paul Bloxham.

“Looking into 2017, we stick by our overall view that the Australian housing market is cooling,” he said in a note on Friday. “However, we are forecasting divergent trends across market segments.”

The divergent performance Bloxham refers to is shown in the table below:

Although at a slower pace than in previous years, it’s very much a continuation of the prevailing theme: houses will outperform apartments with the strongest levels of growth expected to be in Sydney and Melbourne, Australia’s most populous and expensive markets.

“We expect the housing market to cool for a number of reasons,” says Bloxham, citing tighter lending restrictions, a significant boost to apartment supply along with a pull-back in foreign investor interest, primarily from China.

“(This is) largely due to the fall in the RMB/AUD, making Australian housing more expensive for Chinese buyers and, thereby, weakening demand,” he says.

Here’s a brief overview of what Bloxham expects is each mainland state capital market in 2017.

Sydney

We expect housing price growth of 4-6%, with both the detached house and apartment markets supported by strong population growth and limited signs of oversupply. Nonetheless, apartment prices are expected to track at a slower pace than detached houses. In the detached house market there is only modest growth in new supply expected.

Melbourne

We expect housing price growth of 2% to 4%, supported by growth in detached house prices (5% to 6%) as solid demand is met by only limited supply. In contrast, we expect the oversupply in the apartment market, particularly in the inner city, is likely to start showing through in price falls (-6% to -2%).

Brisbane

We expect oversupply to weigh on apartment prices (-4% to 0%), but we see a limited effect on the detached house market, partly due to the lack of substitutability. A key difference for the Brisbane market, when compared with Melbourne, is that housing price growth has been far more limited than in Melbourne, which could limit the scope for significant price falls.

Perth

The end of the mining boom has weighed on Perth’s housing market, driving housing price falls in 2016, which we expect to continue in 2017 Part of the adjustment is coming through slower population growth, as people move to the eastern states. Weaker population growth is also expected to continue to weigh on the Perth housing market in 2017.

Adelaide

This housing market is dominated by detached dwellings. The South Australian economy is expected to continue to have only modest growth, keeping housing price growth contained.

According to latest figures from CoreLogic, the median dwelling price in Australia has risen by 9.7% so far this year, led largely by some enormous gains in Sydney and Melbourne.

Prices in Sydney have jumped by 14.6% while those in Melbourne have gained 11.5%, taking the increase since January 2009 to over 95% and 80% respectively.

Adelaide, at 5.7%, is currently the distant third.

While HSBC believes these growth rates will cool next year, that was a common view expressed in late 2015 in relation to what would happen in 2016.

Obviously that didn’t eventuate.

It will be interesting to see if that trend is maintained, particularly at a time when the debate over housing affordability is already at fever pitch.

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