Morning Briefing: Sydney and Melbourne to be hit by small price corrections by 2018

Sydney and Melbourne to be hit by small price corrections by 2018

While recent talk surrounding Australia’s biggest property markets has centred on capital growth levels slowing over the next year, a new report has predicted Sydney and Melbourne could be in for price corrections in the near future.

Released earlier this week, QBE's Australian Housing Outlook 2015-2018 report predicts dwelling values will continue to grow in both Sydney and Melbourne through to the middle of 2016, before some level of correction is seen in the following two years.

In Melbourne, capital growth is expected to continue by 4.8% to mid-2016 for houses, followed by a flat 2017 and then a fall of 1.9% in 2018.

Prices for apartments in the Victorian capital are expected to increase by 0.9% through the middle of next year, before falling by 5.8% over the following two years.

QBE’s predictions for Melbourne are backed by at least one property professional on the ground in the city.

“Look we’ve had a substantial run over the last few years and there’s been some tremendous results, but the runs probably come to an end,” Paul Osborne, founder of Melbourne-based buyer’s agency Secret Agent said.

“In the boom times there’s always some excess. Excess in what people are paying and excess in development as well and I think we’re going through the effects of that now,” Osborne said.

Melbourne’s apartment market is feeling the impact of excess supply, according to Osborne.

“Supply is definitely an issue and from 2017 there’s really going to be an issue with oversupply,” he said.

“Investors are also turning away from them a bit at the moment as well. The increased scrutiny they’re facing on the lending side and also the dropping rental returns mean they’re not as attractive so the demand isn’t there.”

Houses in Melbourne are likely to be impacted by wider economic conditions.

“I think the houses that are available in the Melbourne inner-city core that have some space and are in good school zones might fly against the predictions.

“But those dwellings in the middle tier that are 10, 15 or 20km from the CBD could be hurt by the fact that incomes aren’t growing and unemployment is starting to become a bit of an issue.”

For Sydney, the report predicts the median house price will grow by 7.3% to $1.11 million by the middle of next year, before experiencing a combined fall of 5% over 2017-18.

Unit prices will rise by 4.8% to a median of $740,000 by halfway through 2016, before dropping by 2.7% over 2017 and 3.5% over 2018 back to a median price of $695,000.
  Figures released this week by the Housing Institute of Australia (HIA) have revealed that September saw a decrease in the number of new homes sold during the month.

According to the HIA’s latest New Home Sales Report, the number of new homes sold during September fell by 4%, with sales now 5.2% below the peak of 8,000 that occurred in April.

“The decline in total new home sales was reflected in both the detached and non-detached segments of the market in September 2015,” HIA economist Diwa Hopkins said.

“Following the peak level of sales that occurred in April this year, sales activity has trended lower only very modestly,” Hopkins said.

According to the HIA, the drop off has been exacerbated by restrictive credit policies and while the number of new homes built this year is a record, it could have been higher had finance been easier to come by.

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“A fresh record level of building activity during this financial year could have been achieved – and could have been of strong benefit to the broader domestic economy – but increasingly restrictive credit conditions are likely to
curtail the boom in new home building,” Hopkins said.

“The deterioration in credit conditions is likely to weigh more heavily on new home building activity beyond 2015/16. We have therefore pared back our forecasts for activity over our forecast horizon beyond the end of the current financial year.”

During September detached house sales declined by 19.8% South Australia, 8.6% in Western Australia, 5.9% in Queensland and 0.5% in New South Wales.

In Victoria, detached house sales increased by 3.1%