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Plummeting property prices could stabilise as early as next year before moving into a moderate growth phase, new research from Domain Group has suggested.
Domain’s latest Property Price Forecast report has modeled the likely scenario for capital city prices over the next two years, factoring in population growth, interest rates, bank lending, unemployment rates and market sentiment.
Sydney and Melbourne house prices are now predicted to bottom out before stabilising in 2019 after significant declines in 2018.
Domain expects the price falls by mid-2019 to be in line with those seen in the late 1980s, both coming off the back of an extraordinary period of rapid growth.
House price forecasts (annual change to December quarter)
| City | 2018 (estimate) | 2019 (forecast) | 2020 (forecast) |
|---|---|---|---|
| Sydney | -8% | 0% | 4% |
| Melbourne | -9% | -1% | 4% |
| Brisbane | 0% | 4% | 5% |
| Perth | -5% | 5% | 3% |
| Adelaide | 2% | 2% | 2% |
| Hobart | 12% | 2% | 2% |
| Canberra | 2% | 4% | 4% |
| Australia (combined capitals) | -6% | 1% | 4% |
The national average home price has dropped 3.5 percent this year with many homeowners now losing up to $1,000 per week in value.
“After a tumultuous 12 months for Australian property, the market looks set to turn a corner in 2019” Domain analysts Trent Wiltshire said.
“That’s not to say prices won’t fall further, but the pace of those falls will slow in the first half of 2019 before we move into another moderate growth phase.”
Domain has projected that Australian house prices are expected to keep falling over the first half of 2019 before modest growth of about one per cent in 2019, before lifting another four per cent in 2020.
Unit prices are predicted to fall by approximately five per cent from their June 2017 peak before adjusting with growth of two-to-three per cent a year over 2019 and 2020.
Related: Weak Market Conditions to Impact House Prices: Report
Unit price forecasts (annual change to December quarter)
| City | 2018 (estimate) | 2019 (forecast) | 2020 (forecast) |
|---|---|---|---|
| Sydney | -3% | 3% | 5% |
| Melbourne | -1% | 1% | 1% |
| Brisbane | -6% | 3% | 3% |
| Perth | -6% | 2% | 2% |
| Adelaide | -1% | 2% | 2% |
| Hobart | 0% | 0% | 3% |
| Canberra | -5% | 2% | 2% |
| Australia (combined capitals) | -3% | 2% | 3% |
“Banks and potential borrowers should adjust to the "new normal" of stricter lending standards in 2019, resulting in mortgage lending starting to grow again, although at a slow pace,” Wiltshire said.
“This should see price falls bottom out and should also lead to an improvement in market sentiment, which is an important driver of prices.”
Domain believes house prices will be supported by continued strong population growth, lower unemployment, a pick-up in wage growth and increasing first-home buyer activity due to the current state of improved affordability.
“The forecasts are our view of the most likely scenario for Australia’s capital cities,” Wiltshire said.
“However, some things could push prices lower than we predict.”
Wiltshire has forewarned that a potential incoming Labour government could lead to a string of new policies limiting negative gearing to new properties and slashing capital gains tax discounts on investments from 50 per cent to 25 per cent.
“While most experts agree the policy will push prices lower, if Labor implements the policy in 2020 it may actually encourage some investors to buy in 2019 and 2020 to take advantage of the grandfathering of existing investments,” Wiltshire said.
Related: Tighter Lending to Impact Property Developers: RBA
As Sydney and Melbourne are predicted to return to 2016 level prices, Domain anticipates Australia’s fastest growing capitals, Brisbane and Perth, will grow between three and five per cent over the coming years.
Hobart, which has experienced a 40 per cent surge between 2016 and 2018, is expected to level out, growing by two per cent over the next two years.
