Australian Property Market Outlook October 2019
The outlook for Australian property prices is improving.
Prices are rising, and home buyers are flocking back into the market. First home buyers in particular are rushing to snap up bargains ahead of further expected price increases.
Consecutive interest rate cuts by the Reserve Bank of Australia in June and July, and the relaxation of rules on how lenders assess borrowing capacity, have lifted home buyer sentiment, says the Macquarie Property Insights Report – September 2019.
And almost three in four first home buyers believe that now is a good time to buy because current low prices won’t last. As a result, they are planning to get into the property market as soon as possible, the Genworth First Home Buyer Sentiment Report for September reveals.
Sydney property prices rising
Sydney’s residential property market is the biggest in Australia, and it sets the trend for the rest of the nation. After two years of flat or falling home values, Sydney house prices are now on the rise again as buyer activity picks up.
Sydney home values are still more than 10% below their 2017 peak, but CoreLogic's latest monthly home value index shows Sydney property prices have now risen for the past three months in a row, most recently by 1.6% in August.
Premium Sydney suburbs are leading the way with some very steep price rises. For example property prices in Vaucluse were up 24 per cent in the 12 months to August.
Genworth says nearly a quarter (22.2%) of all Australians looking to purchase their first home are targeting the Sydney market, and over 75% of them believe that now is a good time to buy.
As a result of this renewed optimism in the Sydney property market, recent auction clearance rates have been high. They have remained above 70 per cent during September, reaching over 80 per cent in some suburbs.
And the strength in Sydney house prices looks set to be sustained for the foreseeable future.
QBE and BIS Oxford Economics predict Sydney house prices will grow nearly 6 per cent between 2019 and 2022, because building approvals are low and there will likely be an undersupply of Sydney homes in a few years.
Melbourne property prices rising
The Melbourne property market is dominated by auctions, with apartments a significant part of the outlook in the Victorian capital.
As in Sydney, Melbourne property prices are on the rise again. Although Melbourne residential property values are down 6.2% for the past year, they jumped 1.4% for the month of August.
This was the third month in a row of gains for home prices for the city, confirming that the last mini-downturn in Melbourne property prices is now well and truly over.
CoreLogic reports that Melbourne’s auction clearance rates have been climbing and are much higher than they were last year.
For example for the second week of September, Melbourne saw an auction clearance rate of over 75%, compared to just 53.8% for the same week in 2018.
However only 1,020 auctions went to auction, compared to 1,161 homes for the same period in 2018. This suggests Melbourne homeowners are expecting prices to keep rising through spring and summer.
Melbourne is one of the fastest-growing cities in the developed world, and it is forecast to overtake Sydney to become Australia largest city by 2026. This strong demand for new housing will sustain Melbourne property prices for many years to come.
Are national property prices going up or down?
Property prices across Australia are going up, with national house prices rising 0.6% for the quarter and 0.8% for the month according to CoreLogic’s monthly house price index.
Outside of Sydney and Melbourne, some parts of the nation are still experiencing weaker property markets. But Macquarie’s senior economist Justin Fabo says it is quite normal for Australia’s two biggest cities to lead the way, and he expects to see prices in other capital cities follow suit.
“Typically, what happens when Sydney and Melbourne markets experience price growth, the other capital city markets react with a lag,” says Fabo.
Macquarie’s view is that national house prices will rise at least 5% by the end of 2020, driven largely by growth of around 10% in Sydney and Melbourne, and Fabo said house prices could go even higher than that.
“If auction clearance rates maintain the levels we’ve seen, we would expect the pace of price growth to continue at about a per cent a month, which would translate into 12% growth over the next year. That’s fast, but it’s not out of the question, given the outlook for interest rates and the change we’ve seen already in sentiment,” he said.
ME Bank reports that house price expectations have become more positive across the country but especially in Tasmania and Queensland, where significantly more people are predicting prices will start heading up again.
First home buyers to buoy the market
The Australian residential mortgage lending market was worth $359 billion in 2018, or almost $1 billion a day.
Today, first home buyers make up 30% of this market, which is far below the 42% they accounted for in 2009.
This low level of first home buyer participation in the property market in recent years has been caused by rapidly rising house prices that saw many being ‘priced out of the market’, particularly in Sydney and Melbourne.
However that trend is now reversing, and first home buyers are back with a renewed sense of optimism and determination to buy before property prices soar too high again.
As they return to the market in larger numbers, they will buoy the entire market.
Genworth says almost three in four would-be first home buyers nationwide believe that now is ‘a good time to buy’, with one in two citing recent ‘falling property prices’ as the primary reason.
Among Melbourne and Sydney based first home buyers, a stronger majority (75.1% and 73.6% respectively) say that now is a good time to buy.
Interestingly, Perth-based first home buyers are the most optimistic, with 82.0% believing that now is a good time to buy.
Genworth found that among first home bu