Melbourne Property Prices Forecast to Rise by Up to 13% in 2016

Home > Melbourne Property Prices Forecast to Rise by Up to 13% in 2016

Last Modified: 01/1102/16

First-time home buyers looking to purchase property in Melbourne can finally sigh in relief because time, for the first time ever, is on their side. For years, people looking to purchase property have had to run around chasing the elusive dream of owning a home because they were outgunned by the cashed-up investors who drove property prices high.

In 2016, it is predicted that while the prices of property could rise by as much as 13%, the fact that several investment banks foresee the market peaking means that lower prices are likely. This is the best news for first-time homeowners but not-so-good news for investors because it means there will be less investor activity.

The unexpected increase in of interest rates by some of Australia’s major banks in October came just as analysts predicted that peaking of Melbourne’s property Property insurancemarket in early March of 2016 according to American economist Harry Dent Jr. Melbourne’s property price growth is expected to eclipse Sydney’s in March 2016 or thereabouts. Brisbane properties on the other hand are undervalued and set to rise, with the possibility of even better returns.

Australia’s two largest property markets are expected to see a ranking change against a backdrop of dropping price growth witnessed all over the country. However, while Melbourne’s property market will overshadow Sydney’s, according to SQM Research, the values will grow at the slowest rate recorded since 2012.

In its report “2016 Housing Boom and Bust Report”, SQM Research says that Melbourne’s properties will grow at the rate of between 8% and 13% compared to Sydney’s 4% to 9%. The good news, however, is that there will only be a slowdown in the property investment market, partly contributed by October’s hike in interest rates, not a complete market crash like that witnessed in the US in 2008.

Good news for investors

For property investors waiting for the market to peak, there may be good news after all as dwelling prices will rise by as much as 13%. SQM’s Louis Christopher warns doomsayers waiting for the Sydney market to crash not to bet on it because even the worst estimates give the city’s dwellings market at least a 3% growth rate through 2016. The bottom line is that any growth is better than a decline, and neither the Melbourne nor the Sydney markets will decline.

On average, national property prices in Australia rose by an average 9.8% over the past year. In the year to June, the harbour city grew by an astounding 18.9%, a figure that greatly uplifted the national average for the year. Christopher says that the rising Melbourne prices will pick up later in the year, although investors shouldn’t expect it to grow throughout the year. He says that SQM forecasts the Australian national residential housing market will record a slowed growth from around March, largely as an impact of Sydney’s declining market and of course, the banks’ increase of interest rates. The market, however, will not record a drop in prices for the year 2016.

There are already warning signs that Sydney has passed the property market drop baton to Melbourne. In September, right before banks increased their interest rates, prices in Melbourne rose by about 2.4%, a sharp contrast to the prices in the Sydney market which recorded no growth in the same month.

The Aussie economy is slowing

If predictions by SQM are correct, then the prices growth recorded in Melbourne in September will take over completely in 2016. The estimated figure of 13% raises serious concerns about the city’s off-plan property market at a time when Sydney sweats to find answers to questions regarding its potential housing bubble this year. If the report by SQM is anything to go by, then the 2016 house prices will not be as good as 2015 was.

It is now a fact that the Australian economy is slowing. With the banking regulations that target investors, and more recently owner occupiers, in full swing, there is a lot of pressure on housing demand. The growth in population, a key factor to housing and property demand, is slowing too, contributing to the demand’s pressure that will be felt by property investors the most.

This, however, does not necessarily indicate that a bubble burst is in the horizon. Christopher says that the weakening dollar, expected drop in banks’ interest rates, and Melbourne’s growth will keep the market growth steady and afloat. It is important to note that all these will depend on other variables remaining favourable to the property market.

The Three scenarios affecting house prices in 2016

After crunching their numbers, SQM have determined that the three conditions will determine the property market growth and housing prices in Melbourne in 2016 are: interest rates, the dollar, and the economy. The several ranges of forecasts they have come up show the possible outcomes and position of the market at throughout and at the end of 2016.

reserve bank of australiaScenario 1: Assuming that by March 2016, the RBA will have cut interest rates by 0.25%. The economy will be stable, but the dollar may fall to US$0.60. In this scenario, SQM forecasts that the Sydney dwelling prices will rise by 4% to 9%, a satisfactory figure for a market that did not record any growth in September.

When it comes to Melbourne, SQM forecasts a growth of between 8% and 13% under the scenario.

Scenario 2: This scenario is almost like the first, except that it is worse. Assuming that the RBA cut interest rates by 0.5% before June 2016 to account for a struggling economy, the dollar will rest at US$0.55. In this case, SQM predicts Melbourne dwelling prices to boom by 10% to 15%. The 0.5% cut of interest rates would leave the bank rates at 1.5%, and this would boost home loan demand. Under this scenario, the Sydney market wouldn’t change much with a 5% to 9% forecast.

Scenario 3: The third scenario may be termed as “overly optimistic” and has the least chances of panning out. It assumes that there will be no rate cuts, the Aussie dollar to stabilise at US$0.80, and a turnaround of the economy. In such a case, there would be consistency in the growth of the housing market and the prices would boom at 4% to 7% for Melbourne and 3% and 7% for Sydney.

There is one denominator across all these three scenarios: The Melbourne property market. As signs show, the Sydney market is stalling already, and Melbourne is positioning itself as the driver of national house and property price growth.