Capital city house prices to fall by up to 10%, says report

by Julia Corderoy30 Jun 2015
Australian house prices are likely to fall from 2017, according to an economic forecast, but doomsday predictions are highly exaggerated.

According to BIS Shrapnel’s Residential Property Prospects 2015 to 2018 report, low interest rates will support further price growth in undersupplied residential markets in 2015/16, but the prospect of tightening interest rates coupled with rising supply will create conditions for price declines in a number of cities from 2017.

However, BIS Shrapnel senior manager and study author Angie Zigomanis, says doomsday predictions for the residential market are likely to be overblown. 

According to Zigomanis, although Australia’s residential property markets are forecast to steadily weaken from 2016/17, any downturn will be similar in magnitude to that seen over 2011-2012.

The heated Sydney market – where prices have increased by 45% over the past three years – is forecast to ease back to single digit percentage growth of 7% over 2015/16, before falling by 4% over 2016/17 and 2017/18. 

The total price growth in Sydney over the three years to June 2018 is forecast to be 2% – resulting in a real decline of 6% over the period.

“The combination of higher interest rates and recent price growth is expected to discourage both owner occupiers and investors, particularly as pent up demand pressures are beginning to ease,” Zigomanis said.

The Melbourne housing market is also set to experience a downturn. The Melbourne market has been underpinned by strong net overseas migration inflows, as well as unprecedented net interstate migration inflows. This has allowed population growth to match the elevated level of new supply over recent years, and the state is still estimated to have a marginal deficiency overall at June 2015.

However, net overseas migration has been trending downwards, while new dwelling construction, particularly for apartments, is now again at record levels. 

“The potential for continued solid growth in Melbourne’s median house price is limited given the potential for oversupply and weakness in the state economy,” Zigomanis said.

“As a result, the rate of price growth is forecast to progressively slow over the next three years, particularly as interest rate policy begins to be tightened.”

Median house price growth in Melbourne is forecast to total only 4% over the 2015 to 2018 forecast period, with a 5% rise in 2015/16 offset by a small fall in the following two years. After accounting for inflation, prices are forecast to fall by 4% in real terms. 

The easing of supply pressures means that only the Brisbane market is forecast to have experienced any growth in house prices in real terms by June 2018, with all remaining capital cities forecast to have recorded real price declines totalling up to 10%.