Perth house prices have bottomed out and will start to rise again (albeit slowly) from next year, while Sydney house prices are about to see a slight decline, according to the latest housing forecast from BIS Oxford Economics.
Modelling by the research group indicates that the typical price of houses in Perth won’t change in 2017-2018, but will inch up a total of 3% from 2018-2020. This means today’s median-price house (valued at $540,000) would increase in value by $15,000 over the next 36 months to be worth about $555,000 by June 2020. This would still be 23% below 2007’s peak.
In contrast, Perth’s median unit price will drop 1% over the next 36 months to $400,000.
Angie Zigomanis, senior manager of residential property at BIS Oxford Economics, said mining investments were expected to bottom out in the next financial year, with the excess housing supply also approaching a peak.
“Our view is that Perth’s median house price has, or will shortly, bottom out,” Zigomanis said. “Having said that, any recovery will still be very slow and by 2020, we are only expecting a 3 per cent rise from this low, which won’t even keep up with inflation. The economy and employment growth aren’t expected to strengthen quickly and migration inflows will continue to be low.”
In contrast, Sydney’s typical house prices, which have shot up more than 80% over the past five years, will drop approximately 5% over the next two years, before experiencing a slight rebound in 2020.
Zigomanis said the forecast for Sydney was a temporary slump, rather than the major crash that some analysts and investors have long dreaded. This shift in the Harbour City’s fortunes was due to a weakening demand from property investors, who’re finding it increasingly difficult to get loans.
Towards the end of March, the Australian Prudential Regulation Authority (APRA), imposed new limits on interest-only mortgage lending to reduce risks in Sydney and Melbourne’s overheated housing markets. Aside from the 10% cap on annual growth in investor lending, lenders would have to restrict higher-risk interest-only loans to 30% of new residential mortgages.
Investors have also seen their position weakened by the banks’ recent-out-cycle rate hikes on interest-only loans. The banks are being pressured by APRA to convert their interest-only borrowers into interest-and-principal borrowers, and are offering little to no fees to switch over.
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