A new report suggests while the property market will continue to fall this year it will start to see growth again in 2021.
KPMG Economics’ Housing Affordability: Sydney and Melbourne Market Update follows on from a study released in June 2017.
The update looked at a range of factors, including controls implemented by APRA which it found had helped contribute to the slowing in residential price growth.
However, KPMG’s report suggested widespread speculation that house prices are set to go into free fall is overly pessimistic.
While there will continue to be price declines in the near term, KPMG expects prices to bottom out in Australia’s two major cities in 2019.
The market will then start to see price growth again in Melbourne during 2020 and Sydney in 2021.
The KPMG Economics housing affordability update reiterates KPMG’s view that there is a long-run relationship between house prices and variable “push and pull factors” relating to the stock of dwellings, population and borrowing by residential property investors.
It said that despite short-term dislocation, prices tend to revert to the equilibrium suggested by the long-run relationship over time.
Brendan Rynne, KPMG chief economist, “Our housing update shows that the tougher regulatory actions and taxation measures by both federal and state governments we identified last year have had a significant effect.
“There has been a falling-away in foreign interest, notably from China, and lending to domestic buyers has got stricter, while housing supply has increased.
“This is why prices have declined, but we believe that process will reach its peak over the next few months and then go into reverse later this year.”
Rynne added, “In our 2017 paper, KPMG assessed that by the end of FY2016, house prices in Sydney were more overvalued in relation to their “fair value” compared to Melbourne, and therefore they were expected to fall by a greater extent. That has proved to be the case.
“Two years on, a relatively high level of increases in the stock of residential dwellings in both Sydney and Melbourne, a decline in financing for housing investors, and the tightening in APRA lending standards have all combined to drag house prices downwards.
“But what we have also found is that dwelling prices in Sydney are much more sensitive to the demand created by domestic investors than dwelling prices in Melbourne.
“It is predominately this factor that is causing the difference in expected dwelling price growth between the two markets.”