With a significant turnaround in sentiment in the second half of 2019, residential property prices have rebounded strongly in both the Sydney and Melbourne markets. In this article, our Head of Research Bradley Wearne recaps the year that was and reviews the outlook for 2020.
The Property Market in 2019
In 2019 according to CoreLogic [1], dwelling values rose by 1.1% over the month of December, and by 4% over the quarter to finish out 2019 on a positive note. This rate of growth is the fastest growth observed over a 3-month period since November 2009.
This result marks a sharp turn-around from the first half of 2019; where growth was significantly hampered by negative sentiment.
This negative sentiment was largely attributed to the Haynes Royal Commission into Banking, uncertainty surrounding the outcome of federal election, as well as fears about overseas economic problems, including the escalation of the USA/China trade war and Brexit.
Australia’s housing market rebound in the last quarter of 2019 has been led by strong price growth in our largest capital cities; Sydney and Melbourne.
In December 2019, both Sydney and Melbourne recorded the highest annual capital gain, with both cities posting a 5.3% rise in dwelling values over the year.
Regional Tasmania, where values were 6.1% higher over the year, led the regional markets [1].
Source: CoreLogic
According to Head of Research at CoreLogic, Tim Lawless:
“The positive year-end results mask what has been a year of two distinct halves - we saw capital city dwelling values fall by 3.8% over the first six months of 2019 and then rebound by 7.0% over the second half of the year."
Markets in the decline?
In the first half of 2019 the Sydney and Melbourne property markets continued to decline, but since bottoming out in June, the house prices have bounced back strongly.
The catalysts for the turnaround came from three successive interest-rate drops, tax cuts stemming from the federal election and the banks relaxing their lending criteria.
Despite strong growth in the latter half of the year, property values remain lower than previous peaks, illustrated in the table below:
Source: CoreLogic
So, what does the 2020 housing market look like?
As was the case for much of 2019, housing affordability will continue to have a substantial influence over price growth in 2020.
As dwelling completions rise over the first half of 2020 and favourable lending continue to support price growth, the surge in detached house prices in Sydney and Melbourne since June 2019 is not expected to be sustained beyond the first half of 2020.
Consumer sentiment
It is anticipated that the current sentiment will see prices to return to their previous peak in as little as 6-12 months, at which point price growth is expected to moderate as affordability constraints limit further gains.
Wage growth
With wage growth at record lows and dwelling values continuing to rise, we are likely to see a slowdown in capital growth in areas where mortgage rates are higher relative to income.
According to leading analysts BIS Oxford Economics [2]:
"Sydney and Melbourne are expected to outperform the other capital cities over the next 12 months, given their recent recovery, strong population growth, and solid economic fundamentals.”
Bradley Wearne - General Manager at Meridian Australia
P: (02) 9939 3249
References
[1] CoreLogic – Hedonic Home Value Index, December 2019 Results - https://www.corelogic.com.au/sites/default/files/2020-01/CoreLogic%20home%20value%20index%20Jan%202020%20FINAL.pdf
[2] BIS Oxford Economics - Residential Property Prospects, December 2019.