Sydney, Melbourne house prices to keep rising in 2017, says NAB

by | Feb 1, 2017 | property

House prices are predicted to climb even higher in Sydney and Melbourne in 2017, albeit at a slower pace than last year, according to new forecasts from National Australia Bank.

The bank’s economists on Tuesday lifted their forecast for national house prices, citing new survey figures on sentiment towards property, and the assumption interest rates will fall further this year. They are predicting a 4.5 per cent rise in Sydney house prices and a 5.6 per cent lift in Melbourne.

This would be a slowdown compared with the double digit growth in prices that both cities experienced in recent years, but still faster than other capital cities.

However, the bank’s economists predict it will be a different story in the apartment market, where they believe a wave of new units being completed will lead to much softer conditions.

They forecast apartment prices will fall 2.7 per cent in Melbourne in 2017, and 1.8 per cent in Brisbane. Sydney units would rise by 1 per cent, they predicted.

Nationally, they increased their capital city average house price forecast from 0.4 per cent to 3.4 per cent.

The change came after a NAB survey of the property industry pointed to higher confidence in price rises, even as rents in some markets, including Sydney apartments, start to go backwards.

The strength of the housing market in 2016 took many experts by surprise, and NAB’s economists said a key factor behind the strength in prices had been two interest rate cuts from the Reserve Bank.

The bank predicts the RBA will cut the cash rate to fresh record low of 1 per cent this year, from 1.5 per cent now, and this is one reason for its prediction of higher house prices.

But with wages growing at the slowest pace since the 1990s, they said buyers could not continue to bid up prices as they have in recent years. Overall, they argue the housing market will “cool noticeably”, especially for apartments.

Sydney houses have risen by more than 10 per cent a year for the past four years, while Melbourne posted double-digit price growth in 2015 and 2016, according to CoreLogic’s index.

“While fundamentals in the Sydney market still look relatively good, such strong price gains cannot continue indefinitely – especially since prices have outpaced average incomes, and the housing stock is expanding,” NAB economists said.

“The same observations can be made for the second-best performing market, Melbourne, which also experienced double-digit growth – although there was a noticeable divergence between detached houses and apartment prices.”

They also said that recent figures suggested demand from both owner-occupiers and housing investors looked strong.

Figures last week showed new lending to housing investors surged 21.4 per cent in the year to November, sparking speculation financial regulators may impose further restrictions on this part of the market.

NAB said there was still “considerable uncertainty” over the outlook for house prices, pointing to the expected completion of thousands of new apartments in Sydney, Melbourne and Brisbane this year.

The prediction comes after NSW Premier Gladys Berejiklian said addressing housing affordability in the state would be a key priority under her leadership.


This article was originally published by Clancy Yeates on the 24th Jan 2017 via watoday.com.au