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Where is the Property Market Heading in the Next 3 Years?

Sydney resident, James asks

“Where does Mortgage World Australia see the property market heading over the next 3 years

Predicting the future growth or decline in Australian property markets is a favourite pastime of various newspapers and the media. When the media are required to produce newsworthy content a ‘doomsday story’ inevitably arises claiming a significant percentage decline in property markets.

A classic example of this was the recent report on 60 minutes which had experts, and self-proclaimed experts predicting declines of 40% in the Australian property market. Predicting what direction markets will go is a fine science and not easy to accurately predict.

While everyone is entitled to their opinion on where the property market is heading over the next three years you will find a variety of theories exist amongst economists, property agents and finance experts.

QBE, one of Australia’s largest general insurers and one of the two main mortgage insurers in Australia, recently released the QBE Australian Housing Outlook 2018-2021. This was produced by BIS Oxford economics for QBE Lenders Mortgage Insurance. The report makes some predictions about where the markets are going to go in the next three years.

So, what are the QBE’s predictions for the next 3 years?

The following are some key points made in the QBE’s report, forecasting the market’s position by 2021.

  • They are predicting the RBA cash rate to be 2%. At the moment it’s 1.5%.
  • Predicting that the population will be up by 1.4% to 25 million.
  • They are predicting investor loans will fall by 11.1%.
  • A prediction that the first-time home buyer activity will grow by 28.4% of home loan activity, which isn’t surprising since we have seen a decline in prices and continue to see a decline since May, particularly in Sydney and Melbourne. The biggest growth in first-time buyer activity is expected to be in New South Wales, where the investors have pulled out of the market and first-time buyer activity is increasing. Lower prices will help first home buyers get into the market, especially since there are stamp duty concessions to assist, so they’re predicting a big increase in this market.

What are the predictions for growth in the major capital cities in the next three years?

So, from 2018 to 2021 the QBE report details the below prediction for state market movements

  • Sydney houses, they’re predicting a -1.2% negative growth. And for Sydney units, they’re predicting -3.1%.
  • In Melbourne for houses, they’re predicting -2.5% over the next three years and for units in Melbourne -2.1%
  • In Brisbane, they’re predicting a house price growth of 11.3% and in units, they’re predicting a -5.1% negative growth over the next three years.
  • In Perth, they’re predicting a 5% growth in house prices and a 3.7% growth in unit prices.
  • In Adelaide predicting 12.4% house price growth and 6.3% unit growth.
  • Hobart, 7.9% house price growth and 9.3% unit growth.
  • In Canberra, they’re predicting 10.4% house price growth and 5.9% unit growth.
  • In Darwin, 6% house growth and a -4.5% decline in units.

Sydney and Melbourne have experienced extraordinary growth in house and unit prices over the past 3-4 years so it’s no surprise to see them now predicting a decline in prices. It always had to end at some point, particularly after regulators put restrictions on investment lending which really slowed the market down.

I also agree with their prediction of Brisbane house prices growing and a decline in unit prices since there has been an oversupply of units in Brisbane. Some surprises in their predictions are the predicted growth for Perth, Canberra and Adelaide. Perth has been flat or in decline for a number of years after the mining boom ended but that market has to turn upwards at some stage after a sustained period of negative growth.

The prediction of growth in Canberra, which is underpinned by a high-income public service, is not too surprising, but it shows that despite the fact that Sydney and Melbourne are predicted to decline, there’s still opportunity out there in other areas of Australia.

Interstate migration may be the new trend

Overall, there’s nothing too surprising in this report. I agree with the potential of Brisbane to increase and if history repeats itself, what tends to happen after Sydney and Melbourne’s prices go up is that investors look for somewhere else to put their money where the affordability is better, and where the rental yields are better.

Sydney and Melbourne have both got relatively low rental yields and obviously median prices are very high and just don’t present value for investors. So, they look elsewhere, and Brisbane is a logical choice for east coast investors where the yields are high and where the growth hasn’t been as significant in the last three or four years.

In times like this where house prices in Sydney and Melbourne have got to a very high level, there tends to be some interstate migration to Queensland where the weather’s warm and where the house prices are cheaper.

Property Clock

Another useful source of information when determining the best places to buy an investment property is the Herron Todd White Property Clock. Herron Todd White is one of Australia’s largest and most well know property valuation firms. They value hundreds of properties each day so they have their finger on the pulse with respect to the property market.

Each month Herron Todd White release a residential property report. In that report is a property clock in which they give their opinion on where each major city and regional centre is in the property cycle. Although no property predictions are guaranteed to be 100% accurate this report can give you an indication of whether a city or town is in a rising market or in a declining market.

The monthly report can be viewed at under the “Residential” section.

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