Domain's Property Price Forecasts - June 2019

14/07/2019 Domain’s Property Price Forecasts – June 2019
REPORT
Domain’s Property Price Forecasts – June 2019

TRENT WILTSHIRE | JUN 26, 2019
Introduction and key findings
Australia’s capital cities are expected to see property price falls end this
year before experiencing modest price growth in 2020.
Property prices have continued to fall in Sydney and Melbourne in 2019,

extending the correction that began in 2017, but price declines should
end later this year. Hobart’s boom is petering out, with only modest price
growth expected in 2020. The outlook for Perth is also for some modest
price growth next year, but the bottom of the market has been called
before, so there is a risk that weakness will continue. Brisbane unit prices
should stabilise as the apartment construction boom ends, while
Canberra’s ongoing building boom will keep a lid on unit price growth in
the nation’s capital.
There have been significant changes to the outlook since our November
2018 forecasts were released. The start of 2019 was weaker than we
expected, with the financial services royal commission, a slowing
economy, investor caution and election uncertainty weighing on prices.
But in recent weeks, a number of changes point to a turnaround in the
second half of 2019: the Reserve Bank has cut interest rates with further
https://www.domain.com.au/research/domains-property-price-forecasts-june-2019-851001/ 1/21
reductions to come, there will be no changes to negative gearing rules,

and the banking regulator has changed a key lending rule that will make it
easier for people to borrow.
But still, we expect only modest price growth in 2020. While low interest
rates and strong population growth should support prices, tight lending
conditions persist, household debt remains high, which means
households and investors are cautious, and elevated prices means
housing affordability is still a problem. On top of that, the economy is
slowing, with growth in household incomes expected to remain weak.
About the forecasts
We have forecast median house and unit prices for the six months from
the June quarter 2019 to the December quarter 2019, and then prices
changes over the year to the end of 2020.
Economic modelling and analysis of market leading indicators have been

used to produce our forecasts. The forecasts are based on the most
likely future scenario. House and unit price forecasts are based on
Domain Group’s stratified median price series, so there will be significant
variation in price growth within cities. Due to the uncertainty involved in
forecasting, the 2020 price forecast is presented as a range.
Forecast variables used in our economic modelling are derived from the
Reserve Bank’s forecasts, Australian and state treasury forecasts, and
other sources (see Key assumptions). Important inputs are an
expectation of two cash rate cuts (in July 2019 and November 2019),
national population growth of 1.75 per cent each year, a steady national
unemployment rate of 5 per cent, and modest growth in home lending
from late 2019.
House price forecasts
2019 (6 month change) 2020 (annual change)
Australia (combined-capital cities) 1% 2% – 4%
Sydney 2% 3% – 5%
Melbourne 1% 1% – 3%
Brisbane 1% 3% – 5%
Perth 0% 0% – 2%
Adelaide 1% 1% – 3%
Hobart 0% 2% – 4%
Canberra 2% 4% – 6%
Notes: Stratified median house price forecasts. 2019 forecast is 6 month per cent change from June
quarter 2019 to the December quarter 2019. 2020 forecast is the annual per cent change from
December quarter 2019 to December quarter 2020. Darwin excluded from forecasts due to small
volumes and market volatility.
Unit price forecasts
2019 (6 month change) 2020 (annual change)
Australia (combined-capital cities) 1% 1% – 3%
Sydney 2% 2% – 4%
Melbourne 1% 0% – 2%
Brisbane 0% 0% – 2%
Perth 0% 0% – 2%
Adelaide 2% 1% – 3%
Hobart 2% 3% – 5%
Canberra 1% 1% – 3%
Notes: Stratified median house price forecasts. 2019 forecast is 6 month per cent change from June
quarter 2019 to the December quarter 2019. 2020 forecast is the annual per cent change from
December quarter 2019 to December quarter 2020. ‘Units’ includes units and apartments. Darwin
excluded from forecasts due to small volumes and market volatility.

Australia (combined-capital cities)
The big changes that have occurred since the start of May should
contribute to combined capital city property price falls slowing, with
prices bottoming out in spring 2019. Over the six months to December
2019, house and unit prices are forecast to grow by one per cent. In 2020,
we predict house prices to grow by 2 to 4 per cent and unit prices to
grow by about one to 3 per cent.
A number of timely indicators point to prices bottoming out in coming

months. Clearance rates are at their highest point in over a year (although
auction volumes remain low). Domain’s monthly price data and other
high-frequency price data shows that price falls have slowed. There is
growing buyer interest, with the number of people attending each open
for inspection up by 15 per cent compared to before the election. The
Westpac-Melbourne Institute survey shows that more consumers think
prices are close to turning around and that now is a better time to buy a
dwelling. And more people are applying for a home loan.
Beyond these short-term indicators, other factors should underpin

modest price growth over the next 18 months. Treasury is forecasting
annual population growth of 1.75 per cent over the next few years, which
is higher than previously predicted. Lower interest rates have increased
property prices in the past and, while the effect of lower interest rates
may be more muted now, lower rates should still push up prices. In
addition, new housing construction is declining, which will also support
price growth (building approvals are down by 20 per cent compared to a
year ago). But high household debt, affordability problems and a slowing
economy mean that there will only be modest price growth in 2020.
Sydney
Sydney is experiencing the biggest correction in nominal house prices

since the 1980s, but we forecast that price falls will end later this year,
with house and unit prices increasing by 2 per cent over the next six
months. In 2020, the modest turnaround will continue, with house prices
expected to increase by 3 to 5 per cent over the year, and unit prices
forecast to rise by 2 to 4 per cent. Even following this period of
substantial price falls, Sydney median house and unit prices are currently
60 and 40 per cent higher than in 2012.
There are now some clear signs of Sydney prices bottoming out, with the
median house price likely to remain just above $1 million in 2019, and the
median unit price is expected to dip just below $700,000. Clearance
rates are at around 60 per cent, which is the highest point in 15 months,
open for inspection attendance is 17 per cent higher than before the
election, and more frequent price data shows prices are stabilising. All
these factors, in combination with the impact of lower interest rates and
changes to lending rules, support our forecast that prices will bottom out
in spring.
Looking into 2020, low interest rates, stronger population growth and
ongoing low unemployment (4.5 per cent in NSW and even lower in
Sydney) will support price growth. Home lending is expected to grow at
CONTENTS
2 per cent a year due to a turnaround in sentiment and lower interest

rates. While modest, a pick-up in lending will support a turnaround after
lending fell 20 per cent over the past year. Fewer Sydney apartments will
hit the market in 2020, which will also support prices. But due to housing
affordability in Sydney still being a big problem, prices will likely only
grow modestly in 2020.
Melbourne
Melbourne house and unit prices have fallen 11 per cent and 8 per cent
respectively from their peaks, and they will fall a bit further, before prices
bottom out in spring 2019. We predict that house and unit prices will
increase by one per cent between June and December 2019, ending the
year at approximately $800,000 and $470,000 respectively. In 2020, we
forecast that house prices will grow by one to 3 per cent and unit prices
by zero to 2 per cent. By the end of 2020, Melbourne house prices are
expected to be about 10 per cent below their 2017 peak, but still be 50
per cent higher than they were in 2012.
There are signs of increasing buyer interest. Clearance rates are

averaging above 60 per cent over the past four weeks, which is the
highest point in over a year. Clearance rates in Melbourne’s more
expensive areas are strongest, which is an important indicator as the top-
end of the Melbourne market generally leads the overall market. The
average number of attendees at open for inspections is up 16 per cent
compared to before the election. Domain’s monthly price data also
shows that Melbourne price falls have slowed.
Melbourne property prices will be boosted by lower interest rates and

strong population growth of about 2 per cent. In addition, the
unemployment rate is expected to fall in the year ahead. A slowdown in
new housing construction will also support price growth, but elevated
prices and the Melbourne market tending to be six months behind
Sydney in this cycle mean it’s unlikely prices will jump significantly in
2020.
Brisbane
In the next six months, we forecast Brisbane house and unit prices to
bottom out, with house prices expected to increase by one per cent and
unit prices to be unchanged. House prices are then expected to grow by
3 to 5 per cent and units by zero to 2 per cent in 2020. Brisbane house
prices fell by 2 per cent since the second half of 2018. Unit prices have
fallen by about 10 per cent from their 2016 peak.
There are some signs of a turnaround in Brisbane (and south-east

Queensland more broadly). The average number of attendees at open for
inspections is up 15 per cent compared to before the election. But
auction clearance rates remain weak and prices are still falling slowly.
The unemployment rate is expected to remain elevated in Queensland

(at 6 per cent) and although the Brisbane apartment construction boom is
ending, there are still a significant number of apartments coming onto the
market. Relative affordability has made Brisbane and south-east
Queensland attractive compared to Sydney and contributed to strong
interstate migration. This is expected to continue, with annual population
growth remaining at 1.75 per cent in 2020. Low interest rates and a lower
Australian dollar will also boost the Queensland economy and property
prices. House prices are also likely to turnaround in the Gold Coast and
Sunshine Coast, although we expect a smaller pick-up as these coastal
cities look relatively overvalued compared to Brisbane.
Perth
Perth house and unit prices are expected to bottom out in spring, to be
unchanged over the six months to December 2019. At the end of 2019 the
median house price is forecast to be about $520,000, about 15 per cent
below the 2014 peak, and the median unit price $330,000. In 2020, our
model suggests a rebound in Perth prices, but given the entrenched
weakness in the Perth market, we have forecast only modest price
growth of zero to 2 per cent for houses and units.
A number of fundamental drivers of prices suggest a turnaround for

Perth. Annual population growth is predicted to increase to 1.5 per cent
in 2020 (from 0.9 per cent in 2018), interest rates are lower, the Australian
dollar has fallen, the mining outlook is now much stronger, there is
growing demand for workers and unemployment is expected to fall. But
this more positive outlook for Perth has existed for a while and property
prices have continued falling, mortgage arrears are rising and more
households are in negative equity. So while we predict some price
growth in 2020, there is a high risk that price falls could continue.
Adelaide
We forecast ongoing modest property price growth in the next six

months, with house prices expected to increase by one per cent and unit
prices forecast to grow by 2 per cent. In 2020 we predict property price
growth of one to 3 per cent. Adelaide house prices have risen steadily at
about 3 per cent per year in recent years (units have grown at about 2 per
cent annually), although prices have stabilised in 2019.
Home lending has fallen by less in South Australia than in other states, so
there may be less of a rebound. Compared to other states, there has
been a smaller boost in buyer interest following the election. South
Australian population growth is also predicted to be modest, and the
jobs outlook is soft.
Hobart
Hobart house and unit prices increased by around 40 per cent over the
past three years, but so far in 2019 prices have flatlined. Over the next six
months we expect Hobart house prices to be steady and unit prices to
grow by 2 per cent. In 2020, we forecast house price growth of 2 to 4 per
cent and price growth of 3 to 5 per cent for units.
Hobart’s property market has been boosted by stronger population

growth, investors looking for higher yields and a tourism
boom underpinned by a weaker Australian dollar and the “MONA effect”.
These drivers are likely to continue, but they may wane. In addition, new
housing construction is catching up to the pick-up in demand, which will
help limit price growth (the 12-month sum of Tasmanian building

approvals is 26 per cent higher than the previous year). Investors have
also started looking beyond Hobart to other parts of Tasmania,
particularly Launceston.
Canberra
Our forecast for the rest of 2019 is for Canberra house prices to increase
by 2 per cent and unit prices to increase by one per cent. In 2020, we
predict stronger house price growth of 4 to 6 per cent and modest unit
price growth of one to 3 per cent.
Canberra house prices have fallen since late 2018, but this followed solid
price gains in the previous four years. In contrast, Canberra’s median unit
price has fluctuated between $400,000 and $440,000 since 2010, with
prices held down by record rates of new construction.
The election of a Labor government usually contributes to higher

Canberra property prices due to the expectation of more public sector
jobs. But Labor’s proposed tax changes were likely to push prices down a
bit further, so the Coalition’s surprise win should give Canberra property
more of a boost.
Price growth will be underpinned by strong population growth and low

unemployment. Ongoing high levels of new apartment building will keep
unit prices from rising (unit, apartment and townhouse approvals over
the past 12 months are 30 per cent higher than in the previous year). As in
other states, investor borrowing is expected to increase modestly from
late 2019 after falling for the past 18 months.
Upside risks to price forecasts
Investor lending picks up faster than expected
The value of home loan lending is down 17 per cent over the year to April.
Our forecasts assume modest annual growth in lending of about 2 per
cent from late 2019.
But there is a possibility that a turnaround in property prices may change

sentiment and encourage people to borrow, particularly investors. There
are also reports that more banks are becoming more willing to lend. This
could see a faster pick-up in home lending, which would see prices grow
faster than predicted.
Lending could potentially fall further than our conservative forecast, but
this seems less likely. There are two main factors that could see lending
fall further. First, banks are introducing comprehensive credit reporting.
Second, the Westpac v ASIC case before the Federal Court could
potentially require banks to meet stricter responsible lending laws.
Unemployment falls while interest rates are cut
The RBA is cutting interest rates because economic growth is soft,

inflation is below the RBA’s 2 to 3 per cent target range and
unemployment is now trending upwards. The RBA recently stated that it
is aiming for a lower unemployment rate than previously, and that it will
take lower interest rates to reach this new target. So it is possible that
lower interest rates will accompany a falling unemployment rate, which is
unusual because interest rates would normally be cut when
unemployment is rising, which will give a boost to property prices.
Interest rates are cut faster than forecast
We have forecast two further rate cuts, which will bring the cash rate to
0.75 per cent by the end of 2019. But there is a possibility that rates will
be cut further, or faster, or that the RBA implements other forms of
monetary stimulus, which provide a bigger boost to property prices. Rate
expectations continue to fall: on June 11, 2019 there was only a 4 per cent
chance of rates being cut from 0.75 per cent to 0.5 per cent by mid-2020,
on June 20 the probability of a cut had increased to almost 50 per cent.
Of course, the impact of the RBA’s rate cuts will be affected by how
much of any future cuts are passed on to borrowers, and there is a limit
to how far the RBA can cut the cash rate.
Property market sentiment rebounds faster and by more than expected
Property prices have “momentum”. When prices turn around and start
rising, this encourages investors and other buyers into the market who
see the opportunity for capital gains, pushing prices up further. While our
model captures price momentum, we have adjusted the output to
moderate the impact of a turnaround in sentiment due to the overhang of
high household debt, tight lending conditions and weak income growth.
But there is the possibility that sentiment may rebound more
significantly, which will spark a bigger turnaround in prices.
Downside risks to price forecasts
Global slowdown triggered by a trade war drags on Australia’s economy
The US-China trade dispute continues to escalate, which increases the

chances of a sharp economic slowdown in Australia. A trade war would
impact global growth by slowing trade as well as affecting US-Australia
trade and battering global confidence. This would impact Australia’s
property market.
However, if a full-blown trade war did eventuate, a lower exchange rate

and a lower cash rate rate would help to insulate Australia’s economy,
with very low interest rates potentially shielding Australia’s property
market from a major downturn.
Rising unemployment, driven by a construction slowdown, causes forced

selling
The outlook for the construction sector has worsened in 2019. Building
approvals data points to a slowdown in new construction in the next
couple of years.
Because construction is a significant employer, a slowdown in

construction may push up the unemployment rate. A significant rise in
unemployment may see more people forced to sell their homes or their
investment properties, which would push down prices. But on the other
hand, if the construction pipeline is lower than expected, this would
provide some support to property prices.
Owner-occupiers and investors don’t borrow in response to lower interest

rates
Lower interest rates and APRA’s changes to the serviceability buffer will
increase the maximum borrowing capacity of most borrowers,
particularly owner-occupiers. This will likely translate into some new
borrowers borrowing more (RBA research has found that only about 13
per cent of borrowers took out close to the maximum amount they were
offered).
But as household debt is at a record high level, households may not

borrow much more, and banks continue to lend cautiously following the
royal commission and APRA’s instruction to examine household
expenses more closely. As a result, the boost to borrowing power may
lead to only a small increase in actual borrowing.
Key assumptions
– Median prices for the June quarter 2019 are estimated based on partial
data and leading indicators of prices.
Read more
Trent Wiltshire
Trent Wiltshire is an economist at Domain, focusing on the property market,
housing policy and the broader macro-economy. Prior to Domain, Trent
spent four years working as an economist at the Reserve Bank of Australia
and then three years at the Grattan Institute.
View more articles from Trent Wiltshire
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14/07/2019 Domain’s Property Price Forecasts – June 2019

Domain’s Property Price Forecasts – June 2019

Introduction and key findings

Property prices have continued to fall in Sydney and Melbourne in 2019,

reductions to come, there will be no changes to negative gearing rules,

About the forecasts

Economic modelling and analysis of market leading indicators have been

House price forecasts

2019 (6 month change) 2020 (annual change)

Australia (combined-capital cities) 1% 2% – 4%

Unit price forecasts

2019 (6 month change) 2020 (annual change)

Australia (combined-capital cities) 1% 1% – 3%

Australia (combined-capital cities)

A number of timely indicators point to prices bottoming out in coming

Beyond these short-term indicators, other factors should underpin

Sydney is experiencing the biggest correction in nominal house prices

2 per cent a year due to a turnaround in sentiment and lower interest

There are signs of increasing buyer interest. Clearance rates are

Melbourne property prices will be boosted by lower interest rates and

There are some signs of a turnaround in Brisbane (and south-east

The unemployment rate is expected to remain elevated in Queensland

A number of fundamental drivers of prices suggest a turnaround for

We forecast ongoing modest property price growth in the next six

Hobart’s property market has been boosted by stronger population

help limit price growth (the 12-month sum of Tasmanian building

The election of a Labor government usually contributes to higher

Price growth will be underpinned by strong population growth and low

Upside risks to price forecasts

Investor lending picks up faster than expected

But there is a possibility that a turnaround in property prices may change

Unemployment falls while interest rates are cut

The RBA is cutting interest rates because economic growth is soft,

Interest rates are cut faster than forecast

Property market sentiment rebounds faster and by more than expected

Downside risks to price forecasts

Global slowdown triggered by a trade war drags on Australia’s economy

The US-China trade dispute continues to escalate, which increases the

However, if a full-blown trade war did eventuate, a lower exchange rate

Rising unemployment, driven by a construction slowdown, causes forced

Because construction is a significant employer, a slowdown in

Owner-occupiers and investors don’t borrow in response to lower interest

But as household debt is at a record high level, households may not

Read next in Research

News Money & Markets

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© Domain Holdings Australia

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