Property Predictions For 2021 Revealed.

Where will our property markets be in 3 years?

That’s a question people are asking now that our real estate markets have moved to the next stage of the property cycle – one of falling property values in some areas and slower growth in other locations.

We are now seeing the predicted softening in both the Sydney and Melbourne markets after many years of strong growth.

First time home buyers are surging back into these markets replacing some of the demand left by retreating investors.

While there are a lot of property pessimist out there, one group of forecasts — those by BIS Oxford Economics suggests we are in for a soft landing. Sharemarket

Their Residential Property Prospects 2018-2021 report, which predicts the Australian property market outlook, has been getting a lot of press lately, so I thought I’d share their conclusions with you and give you my thoughts.

Of course we know the main purpose of property predictions- to make meteorologists look respectable.

Currently there is no shortage of “experts” trying predict the Australian property market outlook .

Then there are all those online research reports telling you where to invest in next growth hotspot.

Fact is: meteorologist tend to predict the weather better than property commentators predict future property capital growth.

Now this doesn’t mean you shouldn’t listen to the experts.

You should…

But you must also understand the level of accuracy of their predictions and take that into account when investing.

Before I share them with you, I checked back on the track record of BIS’s past 3 year housing market forecasts and their track record is mixed.

Sometimes they overestimated property price growth and in other years they were unnecessarily pessimistic.

To be fair…few researchers make definitive forecasts, particularly beyond twelve months.

BIS Oxford Economics is the only company I know which produces residential real estate forecasts over a three year horizon and places them in the public domain in June each year.

So what’s ahead?

House price growth around Australia has been slowing in recent months, led by falling values in many locations in Sydney and Melbourne, Australia’s largest and most expensive property markets.

That trend looks set to continue driven by tighter lending standards from Australia’s banking regulator – APRA at a time that our banks being allergic to risk following their belting in the Royal Banking Commission, along with weak wage growth, affordability constraints, an increase in apartment supply.

These tighter lending conditions – the inability for many investors who could have in the past borrowed more – are really having the same effect as a rise in interest rates.

They’ve slowed down demand especially the Sydney and Melbourne property markets

In short… we’re in for a soft landing with further price falls in the short term and the stabilising real estate values.

I’m calling it a soft landing because there are very few forced sales at present, and only recently (December 2018) APRA have lifted their restrictions on interest only loans to investors and the RBA Governor has encouraged the banks to lend more.

Back to BIS Oxfords forecasts….

Taking inflation into account, modest price declines were forecast in most capital cities over the next 12 months.

And then all capital cities will turn around and show price growth over the next 3 years, but the results will be fragmented.

Source: ABC

BIS suggests the current slowdown is due to tighter lending criteria, particularly a crackdown on interest-only loans, and record levels of dwelling construction being completed (above 200,000 per year), which may lead to an oversupply in some states.

Our research suggests there is already an oversupply of inner CBD apartments already – especially in the Brisbane, Perth, Canberra and to a much lesser extent Melbourne property market.

And the good news is that our housing markets won’t crash, being underpinned by record low interest rates, a “relatively stable, albeit subdued, economic environment” and strong population growth.

But there should be some “upside” from 2021, as “high net overseas migration inflows [are] likely to be sustained in the coming years” — and “economic conditions begin to strengthen and supply falls back below underlying demand”.

Population growth will absorb the huge supply of new dwellings from the recent construction boom, although any growth in rental will be minimal, according to BIS.

Another Leading Economist also believes the property market will turn the corner in 2019

Trent Wiltshire – economist at Domain and author of their Property Price Forecast report suggests that 2019 looks likely to be a year of greater stability.Happy Country

Just to be clear the report suggests that prices will fall further in the first half of 2019, but at a slower pace before the Australian property markets move into a phase of moderate growth.

Domain expects that Sydney and Melbourne will be two of the weakest markets in 2019 and then forecast prices to grow at about 4 per cent in 2020.

Brisbane, Perth, Adelaide and Canberra will see modest house price growth over the next couple of years and Hobart house prices should stabilise after rapid growth in recent years.

Here are Wiltshire’s forecasts:

While the drop in property values in Sydney and Melbourne in this 2017-2019 downturn are likely to be the largest since price falls since the late 1980s, they have come on the back of an extraordinary period of rapid growth.

Here’s another set of forecasts

QBE recently released their National Australian Housing Outlook and here is a summary of their forecast for 2021 Economic Indicators

QBE are expecting:

  • Interest rates to rise a little over the next 3 years – but only by 0.5%, not the large increase in rates some are predicting, and this is unlikely to occur until 2020
  • Inflation slowly nudging its way up
  • Employment growth continuing, albeit at a slower rate and the unemployment rate holding steady
  • Continued strong population growth due to overseas migration
  • Our economy growing much the same as it has in the last few years.

As you can see they predict strong economic fundamentals – nothing to suggest a property crash ahead.

Domain and ABC gave details of the BIS Oxford report, check out Melbourne’s below;Melbourne

Property Market Forecast

Median house price in June 2018: $870,000

Forecast median house price June 2021: $920,000

Growth 2018 to 2021: 6%

House prices in the Victorian capital surged 65 per cent in the last five years, reaching a peak of $892,000 in December 2017. Melbourne

Even though the Melbourne property market it is taking a breather after 5 years of exceptional growth, there is no sign of a collapse in sight.

Record population growth continues to fuel demand for housing, maintaining an overall undersupply in the market, the report stated.

While the national population grew by 1.6% in the year ended 30 June 2017, the highest growth was in Victoria, with a 2.3% increase in population and experts have predicted it is likely to surpass Sydney as the largest city of Australia by as early as 2031.

“While new dwelling completions are forecast to continue to rise through 2018, as the large pipeline of apartment buildings under construction work their way to completion, supply will be largely met by population growth,” the report’s author Mr Angie Zigomanis said.

House prices are forecast to tread water through to 2021, rising below the pace of inflation.

The report said the emerging downturn in new dwelling construction could spark a modest uptick in prices.

Although the wider market is not expected to tip into oversupply, BIS Oxford Economics anticipates there will be pockets of apartment oversupply given the extent of new unit construction compared to houses.

Unit prices are forecast to fall 2 per cent over the next three years.

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