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House Prices Set to Increase Across All Capitals

In recent months, Australia’s housing market has experienced a downturn. Due to lower selling prices, house owners were unwilling to sell their properties, and buyers were unable to access mortgage financing due to higher interest rates on loans and stringent credit restrictions imposed on lenders.

However, the RBA’s triple rate slash took the base bank rate to a record low of 0.50%, and together with APRA’s relaxation of home loan lending restrictions, house prices began to rise again. These factors were an incentive for many Australians to borrow cheap loans to purchase a property.

Low-Interest Rates Spur Property Market Boom

The projection of the low-interest rates and the possibility of further rate cuts could take the cash rate near the zero and negative interest zones. This current sellers’ market is expected to continue pushing up house prices across all Australian capital cities.

This upsurge in house prices is not ordinary. Typically, a slow, steady correction in prices follows a lengthy downturn period. But the current rise in prices across all cities and nationally is sharp and projected to take house prices across some Australian capitals to record highs. After a 3.7% fall in the price index for the preceding 12 months, house prices rose by 2.4% in the final quarter of 2019.

Sydney and Melbourne Lead This Price Surge

Sydney and Melbourne lead property capital gains, with projections of moderation in property prices later in the year.

Property listing portal Domain predicts Sydney’s median house prices will rise by 10%, peaking at 5% above 2017’s high. Additionally, it estimates 2020’s capital gains across all capitals at 8%.

Melbourne and Brisbane are forecast to grow at par with the national average estimate of 8% mainly driven by declining construction of housing units. Melbourne’s characteristically high population growth is also expected to be a significant contributor to the rise in Melbourne’s house prices, with some analysts putting capital gains at between 10% and 15%.

House prices also show strong promise for the year. With the more favourable conditions in the current lending environment attributed to cheaper lending rates and eased mortgage lending restrictions, house prices in most capital cities still sit lower than the prices they recorded in 2018.

Positive market sentiments among sellers are further evidenced by the low property listings and small vendor discounts offered on property sales. Sellers are offering much lower discounts on property prices compared to the first half of last year when prices in the overall market had slumped. 

In Sydney, for example, discounts on prices are expected to go even lower, with the rising market prices attracting them to enlist their properties for sale in time to fetch the best returns in the current market boom.

Asking prices have already gained 6.9% on the previous 12 months, according to the SQM Research Capital City Average — and we’re potentially still in the middle of the boom. So far, among all the Capitals, only Darwin and Perth have shown reluctance in price gains, with current prices at 3.0% and 2.6% down year-on-year, respectively.

However, experts are positive that prices in the long-dragging Perth market will gain 5% in 2020, with growth pegged on improvement in the mining sector that would potentially buy into the current oversupply in housing. In Darwin, migration levels are low, and property prices are forecasted only to stabilize at best, and some experts suggest that prices are unlikely to go much lower.

Final Thoughts

The contribution of interest rate cuts to growing property prices is not fully exploited. It could be the key to continued growth later in the year as experts forecast that the RBA will further cut rates to take the official cash rate to a new low of 0.25%.

This lower cash rate will undoubtedly lead to more buyers taking mortgages, giving sellers the incentive they need to sell properties at higher prices.

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