The national outlook for house and unit prices is likely to become more subdued over the next 12 to 24 months, according to QBE’s Australian Housing Outlook 2017-2020 report.
Many markets are now building too much stock, particularly units, after new dwelling starts peaked at a record 233,600 dwellings in 2015-16. Moreover, regulatory restrictions on bank lending to investors are expected to tighten over 2017-18. This is likely to further reduce investor activity and slow down price growth.
“Low interest rates have helped drive up prices and investors have been a key source of demand,” QBE said. “Successive initiatives by the financial regulators to dampen speculative investment has resulted in banks lowering loan-to-value ratios to investors, as well as charging higher interest rates to investors and for interest only lending.”
The Australian Prudential Regulation Authority’s (APRA) latest restrictions on interest-only loans are expected to cause a slowdown in investor lending in 2017-18. This is likely to have a negative effect in dwelling prices, with price drops forecasted for some cities.
Median price forecasts
Melbourne’s median house price is forecasted to rise 10.2% from this year to 2020, achieving a new record of $940,000. Sydney’s median house price, in contrast, is expected to decline -0.2% during the same period, dropping to a new median of $1.178m.
All the capitals, with the exception of Sydney and Darwin, are forecasted to experience some median house price growth. Canberra will lead in this area, posting growth of 16.3%, followed by Hobart (10.8%) and Melbourne (10.2%).
The outlook is less rosy for median unit prices: Only three capitals (Adelaide, Hobart, and Canberra) are forecasted to experience median unit price growth. The biggest decline will be seen in Brisbane (-7.2%), followed by Melbourne (-4.8%) and Sydney (-3.8%).
The Domain Group estimates that about 32,000 new units could flood Brisbane’s apartment market over the next 24 months, which is likely to drive softening prices even further downward.
Michele Bullock, the RBA Assistant Governor (Financial System), said the Reserve Bank is less concerned about the wave of high-rise construction in Sydney and Melbourne due to stronger demand and population growth in these two markets.
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