Matthew Cranston| Australian Financial Review| 25 July 2017
With talk of an interest rate rise on Melbourne Cup day house price pundits are getting nervous about their calls on house price growth.
Goldman Sachs puts the chance of a rate hike in November at 60 per cent. That would be the first Reserve Bank of Australia interest rate increase since 2010 and given the sensitivity of interest rates rises on property (there have already been plenty of out of cycle rate rises by banks) there could be some very sudden changes in pricing for homes in Sydney.
More than half of Australians would be under mortgage stress if rates rose 2 percentage points, according to a Galaxy poll commissioned by CoreLogic in May while Riskwise Property Review’s financial modelling has predicted it would only take a rise of 50 basis points – the equivalent of two Reserve Bank rate increases – to trigger an exodus of property investors from the Sydney housing market.
SQM’s Louis Christopher, who has long been one of the most accurate forecasters, says the combination of house and unit growth nationally will be 6-10 per cent in 2017. In Sydney he forecasts dwelling prices will rise between 11 to 16 per cent for the 2017 calendar year but does not have a forecast for next year.
“The biggest risk to affect the base case forecast would likely be further aggressive APRA action plus RBA cash rate rise,” Mr Christopher said, “Both would have to happen this current quarter but if it happens in say November, then our 2017 forecasts remain safe.
His views are among the most bullish.
HSBC’s Paul Bloxham also has some pretty positive views, expecting national house price growth between 8 per cent to 10 per cent this year but only 3 per cent to 6 per cent next year.
Mr Bloxham expects Sydney house prices to rise between 14 per cent to 16 per cent in 2017 before halving to between 7 per cent and 9 per cent in 2018.
Domain chief economist Andrew Wilson is also on the positive side, forecasting Sydney house prices to rise 6 per cent this year and just 3 per cent next year, while Melbourne will hit 11 per cent this calendar year and 5 per cent next year.
“My house price forecasts are based on a neutral outlook for interest rates and we see a year or more of neutral outlooks,” Mr Wilson said.
There are more bearish forecasts.
For Sydney houses alone BIS Oxford Economics expects there to be only 3 per cent growth in 2017, while in 2018 Sydney house prices will lose 4 per cent. In Melbourne house price growth will be 5 per cent this year while next year they will only be 1 per cent higher.
Nationally BIS Oxford Economics expects house price growth of 3 per cent this year while next year it will drop 1 per cent.
CoreLogic Moody’s forecasts detached housing values across the capital cities to increase 5.6 per cent in 2017. In Sydney that will be 7.2 per cent in 2017 and in Melbourne only 7 per cent.
“We ‘called’ the 13 per cent year on year growth in March as the peak of growth, and still see slowing amid record supply and poor affordability,” UBS analysts said.
“Macroprudential policy tightening, including caps on credit growth and interest only loans, is likely to lead to some ongoing tightening of credit conditions and higher mortgage rates that will weigh on housing demand ahead.”
Among the big Australian banks National Australia Bank lowered its forecasts for this 2017 calender year with house price growth to hit 5 per cent from 7.2 per cent.
Next year it sees 4.3 per cent growth. In the biggest single housing market, Sydney, NAB expects house prices to rise 6.7 per cent this year before rising 4.9 per cent in 2018. In Melbourne it expects 7.5 per cent growth this year and 5.5 per cent next year.
NAB chief economist Alan Oster said regulatory rules would play a big part in the direction of the house price market.
“Clearly, tougher measures on banks announced by regulators to rein in investor lending are being felt in this segment of the market” said Mr Oster.
Even Investment bank JP Morgan has chipped in with a view, expecting house prices to rise 6 per cent for 2017, and 2 per cent for 2018.
“Given that investor lending was a key marginal driver of the most recent upswing in Sydney and Melbourne prices, we expect that, absent a significant pickup in owner-occupier mortgage growth, capital city house price growth will continue to moderate this year.”