Housing Market Forecast 2020
The housing market in Australia is attracting a lot of attention. After the heat, drought, fires, and floods, Australia’s focus turns to rebuilding.
The Corona Virus problem is the latest hurdle the markets must surmount. Although China’s economy is being impacted, these events pass. At some point, perhaps by April, the markets could rebound.
The market has been recovering nicely from the downturn of 2018/2019 were a trying time for investors and rental property owners. As you can see in the chart from Corelogic below, Sydney and Melbourne have recovered nicely with strong property price growth across the last month back one year.
Cities Ready to Follow Sydney and Melbourne?
Australia’s other cities have endured tough times. But for them, prices have begun to turn up in January. Nationally, home prices rose almost 1% at the end of January 2020.
A new forecast from Reuters paints a much better picture for 2020. A poll of real estate economists believe the housing market will rebound, 2.75% in 2020 and 3.50% in 2021.
The US/China trade deal just announced promises to bring export levels to China back again. That would be the most significant boost to the housing market. Secondarily, recent troubles plus the bushfires, are encouraging lower interest rates and easier monetary policy.
Which Cities Will Rebound in 2020?
Markets have rebounded. Corelogic reported prices fell 3.8% over the first six months of 2019 and then rebounded by 7.0% over the second half of the year. Now with low interest rates and a new US China trade deal, the outlook is becoming rosy.
“We expect that lower interest rates will have a more powerful effect on housing prices than commonly expected,” Macquarie economist Justin Fabo told Reuters.
He expects prices in Sydney and Melbourne to surge 9% in 2020, the most bullish of the 9 forecasts for capital cities.
Dwelling Prices by Price Level
One of the most eyebrow raising stats is this below. High priced properties have shot up in the last year.
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The longer the downturn continues, the more pressure Australian banks will experience with their 1.7$ trillion debt. That mortgage related debt may be one of the highest in the world.
Are Rent Yields About to Grow Significantly?
Can Australia’s Economy Stay Strong?
Australia’s economy has been bolstered by widening trade surpluses. GDP is expected to grow 2.5% in 2019. Yet lower commodity prices, reduced foreign investment, consumer debt trouble, and more is making a few experts warn of a housing crash. The China issue has some concerned it might snowball in to a bigger problem. Rent yields have dropped, yet through all the turmoil, dwelling prices are rising.
“more than 60% of bank loans in Australia are in residential properties, making it the highest proportion in developed countries and more than double compared to the US” — from post in the Singapore Business Review
Australian investors, landlords, and property managers will likely feel warm winds of more sales in 2020. Property managers will want to look into property management software platforms to help them drive even more profit from their portfolios.
Despite the recent trends, there may be good buying opportunities in Sydney and Melbourne. Prices and rents here are much lower than Europe or North America. Are Australian rent prices a concern? Let’s take a look so you can determine the price/rent ratio and the ROI on buying Australian real estate.
For over-indebted Australian mortgage holders, it might be the end, but for savvy investors, 2019 might bring some outstanding buying opportunities for rental income property. With or without the negative gearing proposed by the labor party, experts suggest rental property investors can still come out ahead.
Prices Dropping Down Under
Compare the two charts below to see how prices have changed over the last months. Last month, prices in Sydney dropped 8% overall while house price fell by 9.2%.
The general consensus is that Australia’s housing market has resumed its upward momentum during the last half of 2019, and is ready for solid growth in 2020.
As the above graphic shows, after 6 years of price growth of about 8% per year, prices began to fall in 2017. This chart doesn’t show the precipitous drops of the last month. Fears of oversupply of housing will cause developers to cut back on development which decreases investment and tax revenue for governments and slows the economy. Real estate is big part of any economy including Australia’s and the loss becomes iterative.
Up till now, the housing and economic outlook for Australia were strong:
Australia Rental Price Update
Apartment and house rents have taken a decided turn for the worse in late 2018 The rental markets of Sydney, Melbourne, and Brisbane, are showing strong downward motion. Rent prices are flat in Adelaide, Perth, Canberra, and Hobart. Housing market prices declined in Sydney, Melbourne and Perth, but rose in other cities.
Rent prices are flat or went down for the most part in November. See more of the Australia rental housing market stats at Rent.com.au.
Much of the Australian housing market predictions will be influenced by international trade, China imports, and China’s access to its traditional export markets. Australia’s exports were in decline.
Predictions for 2020
The housing markets did fall into a retraction in 2018/2019. The stubbornness of US President Trump’s “America First Policy” and tariffs against China, the ripple effects will take their toll on the Australian economy in the years ahead. Those effects haven’t been felt is some cities, yet will inevitably be equally felt among all major cities as lending is tightened.
First time homebuyer growth as surged in some states, however with tightened lending and a sagging economy, that might reverse itself.
Reductions in rent prices are steep in Hobart, Darwin and Canberra, and price drops may hit all other cities by 2019. That’s good news for housing affordability but less positive for investors. If you’re deep into the housing market and need deep numbers, see the Residential Property Prospects 2018 – 2021 report published by BIS Oxford. Just be wary of old data that doesn’t reflect the macroeconomic changes going on globally.
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