Melbourne’s property price growth is among the strongest in the country, but economists are split on what prices will look like next year.
Domain asked five top Australian economists to provide their forecasts for price growth over the next 12 months – and the results were surprising.
For houses it seems the boom is yet to run its course, with the overwhelming majority of experts anticipating continued price growth.
But the big question mark hangs over the future of apartments.
There was little consensus about what that trajectory might look like for this part of the property market – with expectations ranging drastically for 2018’s unit outlook.
… it appears as though the long-overdue cooling in Sydney and Melbourne is poised to happen.Stephen Koukoulas, Market Economics
- AMP Capital chief economist Shane Oliver
- Market Economics managing director Stephen Koukoulas
- Compass Economics chief economist Hans Kunnen
- BIS Oxford Economics managing director Robert Mellor
- Domain Group chief economist Andrew Wilson
Read the panel’s Sydney predictions here.
House price outlook
- Four expect prices to increase.
- One expects prices to remain flat.
- Highest outlook: prices up “5 to 10 per cent”
- Lowest outlook: no growth
The one point all the experts surveyed agreed on was that Melbourne houses would not fall in price in the 2017-18 financial year, though Market Economics managing director Stephen Koukoulas did not expect any growth.
Mr Koukoulas anticipated a slowdown 12 months ago, which didn’t eventuate. But he was not alone in his predictions then, with many seasoned experts anticipating the end of the boom.
With a crackdown on demand-side pressures — including higher interest rates for investors and interest only loans — and rising supply, Mr Koukoulas is confident the market will flat line now.
Even experts forecasting growth for this market were not expecting to see anything near the conditions of the year to June 2017 again when prices jumped 15.1 per cent.
For the four experts anticipating more upwards price movement, forecasts ranged from 2 per cent, as tipped by AMP Capital’s Shane Oliver, all the way up to nudging 10 per cent.
Melbourne’s median house price could be anywhere from about $866,000 to $935,000 by mid-2018 on these measures.
Compass Economics chief economist Hans Kunnen anticipated a strong growth trajectory for Melbourne in the bracket of 5 to 10 per cent due to strong population growth and economic activity.
“Interest rates are not expected to rise and current APRA [Australian Prudential Regulation Authority] regulations seem to have stemmed the excesses of investment lending,” he said.
Domain Group chief economist Andrew Wilson pointed to a “raft of predictions of doom and gloom for Melbourne this year that have proven nonsensical” but he didn’t anticipate any double digit annual growth figures in the near-future.
The panel was less certain about what would happen in the apartment market.
- Three expect prices to fall.
- Two experts predict prices to grow.
- Highest outlook: prices up “5 to 10 per cent”
- Lowest outlook: price falls of 5 per cent
Both Dr Oliver, Mr Koukoulas and BIS Oxford Economics managing director Robert Mellor expected unit prices would decline.
And if these predictions pan out, it could leave Melbourne’s current median apartment price of $474,848 dropping to anywhere between $451,106 and $465,351 by June 2018.
The most bearish predictions came from Dr Oliver, who said his outlook of a 5 per cent fall was based on unchanged interest rates for the next 12 months, but a likely increase of 25 basis points for bank mortgage rates on interest-only loans for investors.
He was also expecting another round of tightening measures from the banking regulator, APRA, and a cooling of offshore demand.
“This, along with a surge in the supply of units, will likely result in falls in unit prices and a slowing in home price gains,” he said.
Mr Mellor was expecting apartment price falls of 2 per cent in Melbourne, basing his predictions on an outlook of stable interest rates for variable home loans and no change in the official cash rate.
He said there would be a “substantial reduction in investor demand from local and offshore buyers, but a modest pick up in first-home buyers in response to state government changes on stamp duty”.
A downturn in these two buyer groups would most likely hit the apartment market, given investors and offshore buyers have typically been those purchasing this type of property during the boom.
Mr Koukoulas also pointed to surging supply, higher interest rates on interest-only and investor loans and banks making it “a little bit harder to borrow”.
“Throw all these things into the melting pot and it appears as though the long overdue cooling in Sydney and Melbourne is poised to happen,” he said.
HIA chief economist Shane Garrett was anticipating a significant fall in home building – with apartment starts declining 12.5 per cent in 2017-18 compared to 2016-17 and house starts dropping 9.4 per cent over the same period as a result of this downturn.
The most bullish forecast was from Dr Wilson, who is expecting apartment prices to climb 3 per cent – bringing them to $489,093.
However, he warned it was “hard to pick a trend over the medium to longer term … drivers can change even in a short time period. It’s like picking the weather.
“Even policymakers have trouble forecasting on a quarterly basis – we see so many forecasts that are consistently wrong.”
With this in mind, it’s no surprise even some of the most experienced property experts can’t agree on what will happen in the near future.