House prices are expected to rise by 5% across the country and Sydney and Melbourne will see record levels of apartment construction fuelled by strong population growth, predicts the Commonwealth Bank’s Housing Construction and Prices Outlook for 2017 report.
Following a year of strong capital growth for houses in the two major property markets, the report forecasts slightly more subdued rises in values for the next 12 months. Melbourne is expected to see the biggest increase in house price growth of all eight capital cities at 7%, having recording median growth of more than 15% in 2016 according to CoreLogic figures cited by the CBA.
Sydney and Canberra will be next strongest performers, with the report predicting median growth of 5% for semi and detached houses in both cities.
After a couple of hard years, Perth’s property market could see the greatest percentage increase year-on-year of the cities. The WA capital recorded a 4.3% drop in median house price in 2016, but the report predicts value growth of 2% this year.
Brisbane, Hobart and Adelaide house prices are also forecast to grow by 2%, while Darwin is expected to remain flat.
Houses vs units
It’s anticipated that the level of unit construction will continue to drive price divergence between houses and units, especially in the Queensland and Victorian capitals. In Melbourne, unit prices experienced 1.7% value growth over 2016 – noticeably weaker than house price growth – while Brisbane apartments fell slightly.
“Record new apartment supply in the three largest cities, and their suburbs, should restrain growth in prices and rents through 2017,” the report says.
“While the new housing construction numbers are near record levels, we believe it can be absorbed without significant oversupply problems.”
Will property become more affordable?
The report suggests “no interest rate cuts are likely” in 2017 following two cuts by the RBA to the official cash rate last year. National wage growth is forecast at 2%, a 20-year low, meaning that although house price growth is predicted to slow, it will still likely outpace increases in earning.
However, given the strong variations between the property markets in each capital city as well as the likely performance of houses versus units, there should still be opportunities for those still looking to capitalise on the current low-rate environment.
What about renting?
Data from the Real Estate Institute of Australia shows that rental growth for two-bedroom units in capital cities is moderating. The report notes there are already some issues of oversupply evident in Perth, Darwin and Brisbane.
Falling rents are largely apparent in mining-influenced capital cities – a result of supply and subdued jobs and wages growth. The report argues these conditions are unlikely to change in 2017.