Grow Magazine

No crash, but house price growth will slow

Real estate prices won’t increase anywhere near as much next year, explains Heather Jacobs.


House prices won’t grow as much next year as they did in 2017, with expectations they’ll rise about 3 per cent across Australia in the next 12 months, according to ANZ experts.

While this is down from the peak of 11 per cent in 2017, a widespread fall in house prices across the country is not expected.

Interest rates are also expected to rise next year after a record run of low rates. And a recent change, expected to continue, is first-home buyers returning to the market in Sydney and Melbourne, thanks to stamp duty concessions.

In the video above, ANZ senior economist Joanne Masters shares the bank’s outlook for the property market in 2018.

Key points

  • Sydney and Melbourne housing markets will increase very modestly, with Sydney growing less than 3 per cent and Melbourne by about 2 per cent.
  • Canberra, Hobart and Adelaide are also expected to see modest price rises.
  • Perth and Darwin will continue to see prices drop, but they’ll stabilise after the price falls of recent years.
  • Brisbane is also expected to see price drops, due to the over-supply of new apartments.

Apartment supply to dampen price growth

Nationwide, prices are now just 5.5 per cent higher than a year ago – much slower than the 11 per cent year-on-year growth recorded through the middle of the year, according to ANZ’s Australian Housing Update released this December. The report was co-authored by Masters and fellow senior ANZ economist Daniel Gradwell.

“We think 2018 will see a further slowdown in price growth, in line with softer auction results and the expectations of higher interest rates,” they wrote.

An oversupply of apartments is expected to cause growth in Melbourne to level out at about 2 per cent and lead to price drops in Brisbane.

“There are a lot of concerns around the Brisbane market and that apartment glut and also to a lesser extent in Melbourne,” Masters says. “When we look at the number of commencements and building approvals, we do think the supply coming on stream in that apartment market will peak in 2018, so that’s where the biggest impact will be.”

While Melbourne faces a similar issue with apartment supply, there’s also strong population growth in that city, which is expected to better absorb the overflow.

Will the market improve for investors or first-home buyers?

On the back of measures introduced to cool the housing market, investors are facing tighter lending conditions and higher interest rates for investor loans and interest-only loans.

“That’s had a really marked impact for investors,” Masters says. “The number of housing finance approvals for investors has slowed quite dramatically.”

And while conditions are still really tough for first-home buyers, particularly around saving for a deposit, in the past few months there have been really strong mortgage approvals for them.

“In fact, they are up about 40 per cent year-on-year,” Masters says. “Part of that is because we are seeing less demand from investors, so there’s less crowding out. We’ve also got some stamp duty relief in NSW and Victoria, which is helping some of those marginal first-home buyers. Conditions are going to remain tough – affordability is still quite difficult, but we are seeing some easing there and that’s really encouraging.”

According to figures released by NSW Treasurer Dominic Perrottet in the December 14 state budget update, 13,672 people received stamp-duty concessions in the five months to November 2017.

Introduced after the June budget, the First Home Buyers Assistance Scheme means first-home buyers don’t have to pay stamp duty for both new and existing properties up to $650,000. The duty is reduced on a sliding scale for properties between $650,001 and $800,000.

In Victoria, the stamp-duty exemption for first-home buyers is capped at homes worth up to $600,000 with a sliding scale for homes between $600,001 and $750,000. This was also introduced in the June state budget.

How will interest rate hikes affect property prices?

Masters says that ANZ is expecting interest rates to rise in 2018 but believes households will be able to absorb the 50 basis point of rate rises forecast for the year.

In October, the Reserve Bank of Australia voted to keep the official cash rate at 1.5 per cent, the 13th consecutive hold.

“We’re expecting the Reserve Bank to hike the official cash rate and that will flow through to variable mortgages, which is the bulk of mortgages in Australia,” she says. “We are also expecting fixed rates to continue to rise in line with global bond yields. Combined, these two factors are likely to see higher mortgage rates for first-home buyers, owner-occupiers and for investors.”

This is expected to have a flow-on effect on house prices due to higher mortgage rates.

“We might see some decline in house price growth as some people find it difficult to afford such big mortgages, but actually interest rates are still low,” Masters says. “On a historical basis, mortgage rates will still be relatively low and affordability shouldn’t be too strained overall.”

According to ANZ’s December Australian Housing Update, more than 70 per cent of people are ahead of their mortgage repayments, and nearly 50 per cent are more than three months ahead.