Why Housing Will Boom in 2017


January 27, 2017

Why Housing Will Boom in 2017

Sydney and Melbourne property markets are still recording strong levels of growth after ending 2016 on a high. Furthermore, data suggests these markets will continue to have double-digit growth throughout 2017, while other markets will experience single-digit growth.

Capital city forecasts for dwelling price rises range from 4 to 18 percent, according to SQM Research. These increases depend on cash rate changes, the Australian dollar value and Australian Prudential Regulation Authority (APR) moves. SQM indicate that the Australian property market is one of the most overvalued. However, it is expected to continue rising given current levels of demand.

Capital City 12-months

to

June 2016

 

2017 Scenario 1

  • Cash rate unchanged
  • Steady Economy
  • AUD 70-80 c USD
  • APA moves after mid-year
2017 Scenario 2

  • 0.25% cash rate cut
  • AUD 70-80 c USD
  • APA moves after mid-year

2017 Scenario 3

  • 0.25% cash rate rise
  • AUD 70-80 c USD
  • APA moves by mid-year
Perth -4.8% -8 to -4% -6 to -2% -9 to -5%
Brisbane 4.3% 3 to 7% 4 to 8% 3 to 7%
Darwin -1.8% -9 to -5% -7 to -3% -9 to -5%
Melbourne 8.2% 10 to 15% 12 to 17% 8 to 13%
Sydney 3.6% 11 to 16% 13 to 18% 8 to 13%
Adelaide 3.5% 2 to 4% 3 to 6% 2 to 5%
Hobart 4.9% 7 to 12% 8 to 12% 5 to 9%
Canberra 6.0% 3 to 7% 4 to 8% 3 to 6%
Capital Av. 4.1% 6 to 10% 8 to 12% 4 to 9%

Source: ABS Cat 6416 & SQM Boom and Bust Report

These increases are due to four factors a strong economy, population growth, low-interest rates, and limited housing supply. Let us look at each of these factors in-depth.

High Economic Growth in Australian Capitals

Senior economists at SQM suggest the Australian economy is strong, despite conflicting claims. Evidence of economic strength includes 25-years of uninterrupted growth and a Gross Domestic Product (GDP) rate of 3.3 percent. A remarkable feat, given the challenges that the nation has endured over the last 18-months.

Moreover, population growth is assisting Australian economic growth, particularly in Sydney and Melbourne. Thus, the higher the Australian population, the greater the demand, and this, in turn, boosts growth. Plus, it means it is harder for the Australian economy to enter a recession, as determined by a drop in the GDP over two consecutive quarters.

Levels of Population Growth Across Australia Capitals

Australian population growth, over the last decade, according to the Australian Bureau of Statistics (ABS) has averaged 1.7 percent. Figures are more than doubled the rate of America, at the same time. Nonetheless, a growing population needs good economic management and a steady supply of housing. At present, Sydney and Melbourne are the two biggest markets for migration. Hence, home prices in these capitals continue to rise due to demand.

Limited Housing Supply

At present, Australia has a limited supply of dwellings. Nonetheless, the number of inner-city apartments that are nearing completion is considerable. Apartments in Sydney, Melbourne and Brisbane will have an impact on the housing markets in these cities, but how much of an impact is unknown. The RBA are closely watching this market. Economists say the RBA easing foreign investment policy will reduce an oversupply should it affect the economy.

Record Low-Interest Rates

While interest rates are tipped to increase in 2017, the official cash rate is the lowest Australian’s have ever seen. The Reserve Bank of Australia (RBA) began gradually easing rates over the last 5 years down to the current 1.5 percent. But, while most lenders followed the RBA’s lead, they have complained about the gap between funding costs and the cash rate. Therefore, many banks have partially passed on rate cuts and made independent rate rises. Consequently, it’s doubtful further rate increases will have a significant impact.


Written by Refinancing.com.au

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