Melbourne’s housing market is set to eclipse Sydney’s in 2020 fuelled by a stronger economy and higher population growth, although the rapid pace is expected to lose steam as listings rise and affordability worsens.
CoreLogic is expecting Melbourne home values to rise by up to 14 per cent in the next 12 months, while Sydney is forecast to grow by up to 12 per cent.
“Considering the strong economy and demographic fundamentals, we could see the Melbourne housing market outperform Sydney’s in 2020,” said CoreLogic’s head of research Tim Lawless.
Melbourne home values are set to outperform Sydney’s in 2020 amid stronger economic and demographic fundamentals.
“Although we don’t expect the rapid price growth evident during the past few months to be sustained, the high rate of population growth, low rate of unemployment and lower housing prices relative to Sydney should help support further gains in home values next year.”
Since bottoming out in May, Melbourne’s housing values had surged by 8.6 per cent, while unit values jumped by 8.1 per cent.
At this rate, CoreLogic expects Melbourne home values to hit a new record as early as January next year.
Sydney house values have rebounded by 8.8 per cent and a smaller 6.8 per cent for units since bottoming out in May.
Mr Lawless expects Sydney home values to reach a new high by March next year, however worsening affordability, slowing population growth and higher stock levels could slow the current growth momentum.
“It’s hard to imagine such a rapid rebound in housing values being sustained far into 2020,” he said.
Nationally, home values are forecast to grow by up to 8 per cent over the next 12 months.
“We’re likely to see housing prices catch up and then overtake their previous record highs, however we expect the rapid rate of capital gains seen over the second half of 2019 to lose steam as stock levels rise and affordability deteriorates,” Mr Lawless said.
Some smaller capital cities could also see market conditions improve due to rising population fuelling housing demand and relatively healthy housing affordability.
“Considering that home values in some of the smaller capitals didn’t fall anywhere near as much as Sydney or Melbourne, they’re poised to see healthy growth in 2020 and are also likely to reach new record highs through the first half of next year,” he said.
Investors set to return in 2020
After staying away from the market during 2019, investors are expected to return in droves, lured by the potential of bigger capital gains and cheaper financing.
“Investors are likely to be motivated by prospects for capital growth as well as the low cost of debt,” said Mr Lawless.
“While rental yields remain low, they are still higher than mortgage cost, providing abundant opportunities for positively geared properties as home loan rates move lower.”
Investors accounted for only 24.8 per cent of total lending during 2019 – the lowest level on record as uncertainties around negative gearing and tighter lending kept them at bay.
Premium suburbs dominate the 2019 top performers
The prestige suburbs in Sydney and Melbourne notched up the biggest gains in house values this year, although some desirable and affordable suburbs also made it to the list.
Beachside suburb St Kilda in Melbourne’s inner south topped the list of out-performers with 19.6 per cent growth, followed by Canberra suburb Melba with a 17.1 per cent increase.
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CEO & FOUNDER
Investors Prime Real Estate