Sydney and Melbourne house prices could rebound by as much as 10% as sales pick up — but there's an important test ahead

Photot: Carl Court/Getty Images.
  • Auction clearance rates in Sydney and Melbourne have had another strong showing over the weekend, as a recovery in the two biggest cities looks imminent.
  • Judging from previous market moves, AMP chief economist Shane Oliver believes we can expect to see as much as a 10% rise in house prices as a result.
  • That’s despite lower volumes, which tend to pick up as a result of strong selling numbers and are likely to only be helped along by the nearing of spring.

The worst appears to be over for the Sydney and Melbourne property markets after yet another successful weekend of auctions.

Clearance rates — the proportion of properties sold at auction — ran home strongly for another straight week, and look to be the best in around two years for both cities.

Across the weekend, 78% of all Sydney homes and 74% of Melbourne’s sold, according to real estate platform Domain.

While the final figures will come in slightly lower, that puts both markets on course for their best results in years, according to AMP chief economist Shane Oliver.

Those results mark the sixth consecutive weekend that both capitals have trended above the 60% level, and the second-straight week that Sydney has broken the 70% mark, according to Domain.

The rebound in market activity has been put down to a number of factors, ranging from the Reserve Bank of Australia (RBA) cutting the official interest rate two months in a row to the loosening of lending that has made it easier to buyers to get credit. Throw into the mix a federal election result in May that guaranteed the current negative gearing policy as well as staved off the Labor party’s attempt to halve the capital gains tax discount and it appears Australia’s largest two property markets have plenty to jump at.

So much so that Oliver expects prices could rebound by as much as 10% across both cities.

“If you look back at the past cycle, clearance normally leads volumes. If you look a the relationship between rebounding clearance rates and prices, this suggests that within a year or so prices will be up 10% in Sydney and Melbourne,” Oliver told Business Insider Australia.

But that comes with a caveat — Oliver sees a constrained market ahead for the remainder of 2019.

“I think we’ll spend this six month period between now and the end of the year bottoming out and then you might see modest gains coming in through next year.”

“There’s a bunch of positive factors supporting the property market but I don’t think prices are going to run away because lending standards are a lot tighter this time around. This is not 2011/12 when banks were happy to lend to virtually anyone. I also think unemployment is going to rise so I think that’s also going to put a cap on prices.

Importantly, those clearance rates are the results of low supply on the market.

“The increase in demand has pushed up clearance rates on still relatively low volumes, which begs the question as to whether it’s sustainable,” Oliver said.

With the number of auctions typically growing in spring as the weather improves, all eyes will be on how sales fare.

“Spring is going to be a bit of a test in all of this, to see whether these kinds of clearance rates continue.”

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