Housing market set to experience further growth before cooling

by Julia Corderoy08 Oct 2014
The Australian housing market is set to experience further growth over the next 12 months before beginning to slow from 2015/16, according to economic forecasting. However, it is not quite “boom” territory.

QBE’s annual Australian Housing Outlook prepared by BIS Shrapnel has forecast further price growth over the next 12 months, as new dwelling construction rises and interest rates remain at stimulatory levels.

However, Robert Mellor, managing director of BIS Shrapnel said not to worry about further price growth – Australia isn’t quite experiencing a housing boom.

“The market is just catching up after a long period of weakness. I wouldn’t call it a boom; I would call it a strong upturn. It isn’t getting out of hand, it is a healthy recovery.”

Mellor says when talking about a housing boom, it is important to remember that price growth has been concentrated in Sydney and Melbourne.

According to RP Data statistics for the 2013/14 financial year, capital city dwelling values increased by 10.1% – driven predominately by Sydney (+15.4%) and Melbourne (+9.4%).

But over 2014/15, the Housing Outlook forecasts a 13% price growth for Sydney and only a 3% growth in Melbourne over the same period – well below the growth experienced over the last financial year.

However, the combination of this further price growth, an increase in housing stock and an eventual tightening of interest rates will cause price growth to stagnate beyond the next 12 months.

According to the report, median house price growth over the next three years is forecast at 9% for Sydney and 5% for Melbourne. 

The strongest growth over the next three years is expected in Brisbane (+17%) due to an undersupply as it recovers after a period of weakness since 2010. While Adelaide (+6%) and Hobart (+5%) are also expecting some growth.

In real terms, Sydney’s median house price at June 2017 is forecast to be unchanged from June 2014 levels, while Melbourne’s would have experienced a 4% decline. The Brisbane market will experience a 7% increase in median house price in real terms at June 2017.