Real estate experts tip property price in 2018
2018 national forecasts - Analyst Forecast
Louis Christopher 4-8pc rise
George Tharenou 0-3pc rise
Robert Mellor1-2pc rise
Cameron Kusher 2-3pc fall
Steve Keen 5-10pc fall
Housing is by far Australians' largest asset, worth a total of $6.8 trillion across the country, according to the latest official ABS estimates.
Just over $1.7 trillion in outstanding home loans also account for more than 60 per cent of Australian bank assets.That makes housing the bedrock of Australia's household wealth, financial system and economy.
But, with prices already slipping in Sydney and price growth easing in Melbourne, that foundation is looking a little shakier.
ABC News spoke to six experts for their views on what the new year has in store for Australian real estate.
Cameron Kusher, head of research Australia, CoreLogic:
2-3 per cent fall
CoreLogic publishes Australia's only daily and monthly property price indices, and also collects data on auction clearance rates and mortgage activity, trying to keep a finger on the pulse of the market.
The company's head of research for Australia, Cameron Kusher, said that pulse is definitely getting weaker.
"At a national level I think that values will be lower, and that will really be driven by Sydney, the areas surrounding Sydney and even, potentially, Melbourne later in 2018," he told ABC News.
"To the end of November they [Sydney prices] were already down 1.3 per cent and I think by the end of 2018 we could see them down as much, potentially, as 5 or 6 per cent in some regions."
Mr Kusher cited more properties on the market, tighter home lending restrictions and fewer investors looking to buy as the main reason prices will continue to soften, potentially resulting in double-digit peak-to-trough falls over the next couple of years.
"It could be as large as 10-15 per cent in Sydney, probably not quite as severe in Melbourne … you could see a 5-10 per cent fall in Melbourne coming over the next few years," he said.
But the news is not grim for all property owners.
Mr Kusher said, after an extended period of price falls, Perth's property market looks set for a flat year in 2018.
"It does look like maybe the bottom has been reached in Perth," he said.
"Unfortunately for a market like Darwin no such sign of growth coming back into that market — values are down 21 per cent from their peak and they're continuing to decline, maybe this time next year we'll start to see that flatten out."
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Mr Kusher predicted modest growth continuing for Adelaide and Brisbane, growth slowing to more moderate levels for Canberra (2-4 per cent), with Hobart to continue having the strongest market, albeit slower than its double-digit surge in 2017.
Mr Kusher said some of the strongest markets this year would be outside the capitals, especially in "sea change" and "tree change" regions along the east coast and Tasmania, with retiring baby boomers "100 per cent" a "big driving force" behind the price jumps in some regional areas.
"If you've owned your property in Sydney for even just 10 years it's pretty much doubled in value, so you can sell out of Sydney, move to a coastal location and live pretty much debt free," he said.
"I do think it's a trend we're going to be seeing more and more of over the next few years."
Louis Christopher, managing director, SQM Research:
4-8 per cent rise
SQM Research is a smaller, independent property analysis firm.
Its managing director Louis Christopher is more optimistic than CoreLogic about the short-term market outlook, particularly for Sydney, and is therefore forecasting a stronger national average of 4-8 per cent growth.
"There will be some variation there," he said.
"Our most bullish scenario for a capital city is Hobart, where we believe the market there will rise somewhere between 8-13 per cent."
Mr Christopher is forecasting modest to moderate price growth everywhere else: Adelaide 0-4 per cent, Perth 1-4 per cent, Darwin 1-4 per cent, Brisbane 3-7 per cent, Melbourne 7-12 per cent and Sydney 4-8 per cent.
"The market will pick up a bit in the second half of 2018 and that will be on the back of the banks being able to expand their lending books once again," he explained.
"The banks are now underneath the key APRA thresholds and are in a position to open up their books."
Interestingly, the forecast of rising prices is not because Mr Christopher sees any good value in Australia's two biggest property markets.
"We think the Sydney market is about 40 per cent overvalued and we have Melbourne just behind that," he said.
"Just because a market is overvalued doesn't mean it will immediately correct."
Mr Christopher said a dramatic cut to immigration or a downturn in those cities' economies could trigger a correction, but he does not see either happening in 2018.
SQM Research also has a positive view about the long-suffering resources regions.
"We've been recording lower [rental] vacancy in Perth and Darwin, as well as the key mining towns … and listings seem to be falling away a bit implying that vendors are not so keen to sell anymore," Mr Christopher said.
Outside of the bigger cities, he observed that a lower and stable Australian dollar was driving strong tourism inflows, which should support property demand and prices in popular holiday destinations.
Professor Steve Keen, Kingston University, London:
5-10 per cent fall
In stark contrast to Louis Christopher's upbeat short-term outlook, renowned doomsayer Professor Steve Keen believes a national home price fall across Australia in 2018 is "quite likely".
The Australian economics professor, who currently teaches in London, is predicting a 5-10 per cent national fall in 2018, with the decline concentrated in markets that have had the most speculative activity — Sydney, Melbourne and their surrounds.
Professor Keen's prediction continues to be based on his theory that growing debt, rather than supply-demand imbalances, is the key driving force behind rising property prices, and Australian households are close to being maxed out.
"Australia's household debt level was 80 per cent of GDP in 2002," he told ABC News.
"It exceeded Ireland's maximum level in 2015, it peaked at the end of 2016 at 123 per cent of GDP, versus Ireland's maximum of 117 so we're that much more indebted than the Irish were, and now it's finally starting to turn over."
A large part of that debt — more than a third of home loans — are interest-only mortgages.
Professor Keen is expecting those interest-only loans to contribute to home price falls once a growing number of borrowers switch to principal and interest, pushing repayments up by 35-50 per cent — something investment bank UBS has also warned about.
"The Government will start running a serious creation of money by spending more than it takes back in taxes when this hits — they'll have no choice," he told ABC News.
"We do have the export base we built up during the minerals boom, that is still there.
"So there are some factors which can give us a bit of a chance for the economy to revive and then slow down the rate of decline in house prices."
George Tharenou, chief economist, UBS:
0-3 per cent rise
The Australian analysts at global investment UBS have a similar, although less pessimistic, view of the property market to Steve Keen.
Interest-only loan time bomb - Up to a third of borrowers with interest-only home loans may not realise that is what they have been sold.
The investment bank's research unit has conducted a number of surveys that show up to a third of borrowers may have lied on their loan applications — overstating income or assets, or understating expenses or debts.
The surveys also show many interest-only borrowers appear not to realise that their repayments will jump over the next few years as they start paying off the principal on their loan.
"Through next year you're looking at phase three of macroprudential policy tightening, which means people will be able to borrow less than they could before," UBS chief economist George Tharenou said on a recent conference call.
"If you're borrowing less, because of tighter lending standards, home lending will fall, which then will make house prices probably fall as well."
The likely next phase of APRA's home lending crackdown is to force borrowers to use more realistic baseline estimates of household living expenses, thus reducing the maximum amount of money many customers can borrow.
Given that most home buyers can only pay as much for a home as they are allowed to borrow, this is likely to have a particularly big impact on the most expensive markets of Sydney and Melbourne where borrowing capacity is key to sustaining high prices.
Robert Mellor, managing director, BIS Oxford Economics:1-2 per cent rise
Robert Mellor has been forecasting property markets for decades and he is another analyst who sees weakness without a collapse this year.
"The level of price growth is going to be fairly modest across the country during calendar '18," he said.
Mr Mellor is also forecasting a small price decline in Sydney over the next year or two.
"The boom that lasted for over five years is over in Sydney," he said.
"So we could be talking about, by the end of 2018, prices down close to 5 per cent from their peak of June 2017.
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"Those price declines are probably showing up to a greater degree in the off-the-plan purchases."
Mr Mellor said price falls of 5-10 per cent for off-the-plan apartments in Sydney are quite possible by late-2018.
But, like Cameron Kusher and Louis Christopher, he is more optimistic about prospects elsewhere in New South Wales.
"In some parts of New South Wales, given the price growth we've seen in Sydney, some of those areas up the coast, down the coast I think will continue to do reasonably well - they might still get 5-6 per cent growth while the market's going backwards in Sydney," he predicted.
"If you were an empty nester and you were thinking of trading out of Sydney, if you can sell your property this would be the best time to be doing it close to the peak of the market, you'd be silly to wait a couple of years."
Mr Mellor also sees a subdued outlook beyond Sydney, with 2-3 per cent price growth in Melbourne and few places shooting the lights out.
"Hobart I suspect will continue to be a stand-out ... but the trouble with a market like that, the population growth isn't that substantial that you wonder how long it can last - it might last through 2018 and then come to a peak," he said.
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Beyond sea and tree changers, Mr Mellor said first home buyers are providing much of the demand, but they do not have the deeper pockets of investors.
"[Scott] Morrison with his recent comments, the Treasurer's remarks regarding the actions by the regulatory authorities leading to a slow down in demand, you put that together with government taxes on offshore buyers, it's really brought about a significant correction in the investor market," he said.
"The only real strength out there, and where things have improved significantly in the last five or six months, is amongst first home buyers."
Nerida Conisbee, chief economist, REA Group
Real estate advertising website REA Group does not publish price forecasts, but its chief economist Nerida Conisbee said search data from the site offered an insight into buyer and seller trends.
"Overall we find that buyers are highly sensitive to interest rate changes," she said.
In 2012, the Reserve Bank decided to spark a housing boom (or bubble) to offset the mining bust, argues Michael Janda.
"The two cuts in 2016 led to a surge in demand on our site and that then flowed through to housing demand.
"In 2017, the cash rate went nowhere but mortgage rates began to increase — this led to demand growth slowing towards mid year."
Ms Conisbee is not expecting much change in the market between the later part of last year and the first part of this one.
"2018 is expected to be a far more subdued market than 2017 primarily because we have fewer investors looking to buy, but also because mortgage rates are likely to continue to rise as banks are hit with higher wholesale funding costs from increasing rates overseas," she said.
"It does look that although investors are backing off, first home buyers are now more confident, a bit more cashed up and are taking advantage of less competition in the market."
As for regional variations, Ms Conisbee said searches on her website indicate that demand will not fall off a cliff.
"Melbourne will slow in 2018 but I doubt the slow down will be quite as fast as we are seeing in Sydney," she said.
"This is primarily because pricing is still a lot more reasonable and we aren't seeing investors pull back quite as quickly as in Sydney.
"Darwin joins Townsville and Perth as a city to watch. While prices are still going backwards, demand is slowly picking up."
Scott Morrison, Treasurer, Australian Government
At the recent Mid-year Economic and Fiscal Outlook (MYEFO), Treasurer Scott Morrison appeared to intimate that the Government thought Australia's housing market was poised on a knife-edge by indicating it was vulnerable to modest policy changes.
Property groups argue negative gearing is primarily the domain of the middle class, but the data do not support that.
"With the slightest change to interest-only lending we've seen Sydney house prices fall from double digits [growth], from 15 per cent to 5 per cent in six months. That's with the slightest, scalpel-like change to macroeconomics, to housing borrowing," Mr Morrison said.
"Can you imagine if Labor removed negative gearing and took the hammer to those tax cuts? You only have to look at the slightest change, the impact that has had, and that was an appropriate, proportionate response. Labor's approach would cause serious damage to the housing market."
In either a poor choice of words or a Freudian slip, Mr Morrison also appeared to indicate that the Government had to engage in a hard-sell to convince overseas investors that Australia's housing market was safe.
"I think we've been able to convince agencies around the world that our housing market issues have been largely driven by supply problems and that the values are real but yet high," he added.
"And what they are concerned about is if you had a hard landing in the housing market."
Mr Morrison went on to say the Government's and regulators' actions have ensured a soft landing.
While most of the experts appear to agree that he will be proved correct, the next year or two are likely to provide the true test.
