The property market saw some large fluctuation swings in 2018 ending in a downturn. Here are my top predictions for the new year:
A 2018 throwback
Before looking at the New Year, let's reflect on the surprising fluctuations and the speed of correction which the property market faced in 2018. Unlike most corrections, this was not supply driven. Rather, a correction forged by prudential controls, government policy, the Royal Commission into Banking, and targeted investor lending controls.
The speed at which developers left the market, and that they have almost completely abandoned the small residential development market, was also surprising. Investors retreated almost completely. Recent statistics show investor lending has fallen to 30 percent - the lowest in 30 years - caused by reduced borrowing capacity by as much as 25 per cent, which has now affected the owner occupier market.
Foreign investors had already retreated due, in particular, to the Chinese government making it more difficult for nationals to take their money out. Tightening of FIRB regulations, double stamp duty and increases to withholding tax have had a severe effect on foreign buyers.
The one highlight has been the participation from first home buyers, who saw the decline as an opportunity to enter the market. Property is all about confidence, but consumer sentiment appears to have weakened, and most participants are choosing not to participate in these conditions. Prospective vendors of quality family homes are choosing to sit tight as with interest rates and unemployment rates low, there remains no tension or need to test the market.
2019 property market
This year I am expecting market conditions to remain subdued, especially in the first half of the year. A prediction that housing prices will fall another 5 to 10 per cent before we hit the bottom of this cycle. Confidence will not return overnight.
Most market participants will be wary of the Hayne Commission findings to be released in February and little will occur in the market until after the result of the Federal Election is known in May.
As we noticed last year, the rise in demand of apartments, driven by downsizers and first home buyers, doesn’t look as though it will diminish. In junction, there is no significant pressure for vendors to sell at the moment, so they are waiting on the side lines to see how this plays out.
Rentals however, are very strong and there is little good quality rental accommodation available. I am hearing rentals are being signed up at first open for inspection and rent asking prices are moving upwards.
Victoria 2019 housing prediction
In this current market the main driver will be the price of homes. There is growing demand for sub-$1,000,000, and the sub-$600,000 market will continue to perform well, as first home buyers continue to re-enter the market. Properties with a stamp duty concession below $600,000 will continue to drive regional markets such as Geelong, Ballarat and Bendigo. Growth will continue in Melbourne’s north and west corridor. The prestige market will continue to be challenged until lending constraints ease and foreign investment markets reopen.
A strong indicator will be stock levels. We have seen numbers decreasing and decreasing. Early indicators in 2019 are increasing numbers at open for inspections which is a positive.
Having said that, household debt is at record levels. It seems unlikely we will return to business as usual (10 per cent growth year on year), the best-case scenario is nominal growth or that the markets continue to move sideways. I could see the market drifting downwards another 5 to 10 per cent in the first half of 2019 and expect peak to trough to be no greater than 15 per cent. The market is then likely to stagnate for some period of time, but I believe we will see a bottom in this cycle by spring this year. I expect flat conditions for the next 18 months before the next upswing toward the end of 2020 through to 2025.
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