Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Jonathan Chancellor

30 December 2016

Price growth set to slow, but no-one's tipping 2017 house price declines

Price growth set to slow, but no-one's tipping 2017 house price declines

Australia’s capital city housing markets generally continued to report robust selling conditions through spring with prices on the rise, especially in Sydney and Melbourne.

There was near double digit national price growth during 2016, which was well above forecast.

Low interest rates, increased investor activity, solid economic performances, high migration and heady confidence fuelled the Sydney and Melbourne markets, according to Dr Andrew Wilson, Domain's senior economist.

"Although signs are increasing of subdued and weakening economic activity, the prospect for housing markets and prices growth – particularly in Sydney and Melbourne – remain positive for 2017," Dr Wilson said.

The auction market ended 2016 on a high note, particularly for inner suburbs.

"This augurs well for 2017," Richard Wakelin, director of buyers' agent Wakelin Property Advisory told the Australian Financial Review.

"Do not be surprised if the [Sydney and Melbourne] markets open strongly in mid-February after the six-week summer holiday break."

But away from the inner suburbs, CoreLogic's head of research Tim Lawless sees few signs of improvement in the capital cities and mining towns of WA and the NT.

Louis Christopher, of SQM Research, says it is likely 2017 will be the last year of price falls generated by the mining downturn.

Even Adelaide's weak economy has BIS Shrapnel Residential Property Senior Manager Angie Zigomanis seeing more downside than upside.

Forecasts for national capital city price growth range up to 12 percent.

It is property research group SQM Research's forecast of a national price growth of between 8 and 12 percent, assuming the Reserve Bank of Australia cuts the cash rate by 0.25 percentage points in the middle of 2017.

SQM says if the cash rate remained unchanged in 2017, prices would still rise between 6 to 10 percent. 

"Affluent areas tend to be driven by the prosperity of local economy. And right now, both Sydney and Melbourne have the fastest-growing economies in the nation," SQM managing director Louis Christopher said.

The property analyst says if interest rates were cut again, prices would rise even further, paving the way for a possible correction in 2018.

CoreLogic's Tim Lawless told Fairfax hat the outlook for 2017 was "becoming increasingly challenging to give direction on".

"On one hand we have dwelling values broadly rising across most capital cities, however, as we look below the surface, it is clear that individual housing markets are at very different stages of the cycle and responding to vastly different economic and demographic conditions," he said.

Mr Lawless expects Sydney and Melbourne prices to grow between 9 and 10 percent in 2017 while Perth and Darwin would continue to lose value. 

BIS Shrapnel has tipped 1 to 3 percent house price growth across the national markets, mainly held back by falling apartment prices in Brisbane, Melbourne and parts of Sydney. For houses, BIS Shrapnel said prices would rise in all capital cities except Perth and Darwin. Sydney and Melbourne will top the rises at 4 percent.

AMP Capital chief economist Dr Shane Oliver remains bearish on apartments with his prediction Sydney, Melbourne and Brisbane apartment prices will fall as much as 15 to 20 percent because of the "massive multi-dwelling building boom" over the next two years. 

While Melbourne and Brisbane apartment prices will fall evenly throughout the city, Oliver says Sydney will have pockets where prices will fall include Parramatta, inner west Sydney and Bankstown. 

"There's a [supply] indigestion problem, but Sydney won't have a supply problem for another two years," he said.

Including houses, Oliver thinks national capital city price gains will slow to around 3 to 4 percent.

Domain's Dr Wilson says Sydney and Melbourne will continue to lead the pack and shoot ahead while activity in the other capitals remains “relatively benign."

Wilson is predicting lower interest rates, but doesn't say how many further cuts from the Reserve Bank to stimulate the ailing economy.

He sees Darwin and Perth as set to bottom out next year.
 
Domain's predictions for capital city house price growth in 2017:

  • Sydney (4%)
  • Melbourne (5%)
  • Brisbane (4%)
  • Adelaide (3%)
  • Perth (0%)
  • Hobart (2%)
  • Darwin (1%)
  • Canberra (5%)

Domain's predictions for capital city unit growth in 2017:

  • Sydney (3%)
  • Melbourne (3%)
  • Brisbane (-4%)
  • Adelaide (2%)
  • Perth (-3%)
  • Hobart (2%)
  • Darwin (-2%)
  • Canberra (3%)

Tabcorp's online website Luxbet is taking bets on which capital city will have the biggest capital appreciation for 2017, paying the highest odds for Melbourne at $3.