2017 1st Quarter Housing Review

Intro

2017 has been an interesting year so far in terms of housing. Once again, we are still seeing growth in the capitals housing market on a steady trend upwards. Some real estate gurus believe we are around the 5-year mark on our growth phase. This is in relation to the rise and fall of property prices and the property cycle. Potentially this signals that in the next 2-5 years we will see a plateau and then decline in housing prices as the acceleration of price overtakes confidence.

Growth

This is signalled in the continued acceleration of capital dwellings. Price growth in these dwellings is at its highest since 2010. 4 of our capital cities have seen growth over 10% and only 2 have seen a pricing decline (around -4%). Since 2008 this has meant average housing price has increased c.68%. However, this is primarily centralised in Sydney and Melbourne, two of the highest increases in housing price seen in cities across the world.

Sydney has stood out like a sore thumb in Australia, with growth toppling that of many other Western cities. Sydney house prices have more than doubled since 2008 and this is spurring on other cities such as Melbourne and Canberra into noticeable accelerations. Negative gearing and low interest rates have been some of the continuous driving factors of this growth. However, the RBA is beginning to curb this growth and increase rates. The government has also introduced some interesting policies in their new 2017 federal budget for housing that should result in a slight increase in the supply of housing and therefore a potential increase in affordability. However, this is only a sideline effect as growth is continuing to outstrip any government efforts to improve affordability.

According to the CoreLogic Quarterly Housing and Economic Review it is likely, at least in the short term, for housing to continue increasing. However, the hope is that although prices will rise, the acceleration in that rise will slow. That is the desired result of the government changes to the budget and the cash rate. Although this is a short-term solution, it is a required one, as we don’t want to see exponential housing growth or affordability will cause major disruption in capital cities.

Government Policies

The continuing of negative gearing and the lowering affordability of housing is also causing a rise in the supply of rental properties. Which is having a competition effect and lowering the cost of rentals, or so we hope, alongside government initiatives. Rental properties are becoming an increasing necessity in a society experiencing such growth, but is not necessarily a sustainable one.

Finally, as growth conditions persist and affordability declines we are seeing a significant impact on and from mortgage rates. Rates are low and affordability is stretching. Hence, we are likely to see a growing voice for government intervention in the housing market.

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