After a free fall in prices over the past four years, house values in Perth are expected to grow faster than any other capital city in 2019, according to real estate group Domain.
Perth house prices are expected to hit rock bottom by the beginning of 2019 and then grow 5 per cent next year, slightly more than Brisbane and Canberra, according to Domain’s economist Trent Wiltshire. Prices in Perth will have fallen 13 per cent from their peak – of $616,000 in 2014 – to trough, he said.
“This outlook is underpinned by better economic conditions: new mines are being built, commodity prices are higher, population growth is increasing and employment prospects have improved,” Wiltshire said in his report.
“However, not all signs are positive, with home loan approvals continuing to trend downwards, market sentiment still weak and tighter lending conditions weighing on prices.”
Domain is majority owned by Fairfax Media, publisher of The Australian Financial Review.
Domain’s outlook on Sydney and Melbourne property prices is much more optimistic than other industry players, with the real estate group expecting the two markets to make an earlier come back than most have predicted.
After an 8 per cent fall in 2018, house prices in Sydney are forecast to remain flat in 2019 followed by 4 per cent growth in 2020, while in Melbourne prices are expected to fall by 1 per cent next year before increasing by 4 per cent in 2020.
That’s in contrast to QBE’s forecast last month of house prices falling another 3.5 per cent in Sydney and 4.2 per cent in Melbourne in 2019. According to SQM Research, house prices in both Sydney and Melbourne are expected to fall by between 6 and 9 per cent in 2019.
House prices in Sydney and Melbourne surged about 85 per cent and 70 per cent respectively since 2012 until APRA’s crackdown on investor lending in 2017 followed by increased scrutiny of borrowers by banks put a brake on prices.
An expectation the banks will soon ease up on lending restrictions and buyers will adjust to new borrowing norms, are the key reasons Wiltshire anticipates a speedier market recovery.
“I am more optimistic than other forecasters … but just,” Wiltshire said. “For my peak-to-trough forecasts I’ve got about 11 or 12 per cent, so it’s not too far off what others are saying, I just expect an earlier turnaround.”
The Domain’s base case scenario relies on interest rates remaining unchanged at 1.5 per cent until an increase in the first half of 2020 of 25 basis points.
However, if the RBA introduces an interest rate rise before 2020 or mortgage rates increase or if the outcome of the royal commission is that further lending restrictions are recommended, it could push out the timing of a market turnaround, Wiltshire added.
A change to overseas migration, as the government has flagged, could also cause prices to suffer. “According to our modelling, if annual population growth is 1.2 per cent, rather than 1.5 per cent as forecast, Australian house prices will grow at closer to 2 per cent in 2020 rather than the forecast 4 per cent,” he said.
House prices in Adelaide are expected to continue to increase by 2 per cent each year while price growth in Hobart is expected to slow to 2 per cent next year after a dramatic 12 per cent increase in 2018.