While some pundits have predicted sharp decreases in property prices this year, most forecasters say prices will stabilise in 2019.
Many are expecting prices to remain soft for the first half of 2019, and then to remain flat or begin recovering slowly.
Domain’s Property Price Forecast report predicts that, “After a tumultuous 12 months for Australian property, the market looks set to turn a corner in 2019.”
“The most likely scenario – according to our forecasts – is that Australian house prices will keep falling in the first half of 2019 before turning around and growing modestly, resulting in growth of about 1 per cent in 2019.
“Prices are then forecast to increase another 4 per cent in 2020.”
Domain expects house prices to be weaker than unit prices this year. While it predicts that house prices will rise 1 per cent in 2019, it’s forecasting unit prices will rise 2 per cent.
The factors influencing property prices this year
Few expect interest rates to move at all this year, and to remain at 1.5 per cent where the cash rate has sat for nearly two and a half years.
But if wages growth remains stagnant and property prices continue to be weak, the Reserve Bank could be tempted to lower rates to boost consumer and business confidence.
Similarly, if mortgage rates edge higher, the Reserve Bank could be tempted to lower the cash rate.
Tightened lending standards by the banks
The shame heaped upon the banks during the Royal Commission has led to more conservative lending criteria.
As a result, it has been much harder to get property finance, particularly for investors.
APRA’s crackdown on lending standards has also constrained investor lending.
Now that the Royal Commission is over, we could begin to see lending relax a little, or at the very least the market adjusting to a ‘new normal’.
Increased supply of new homes in Sydney and Melbourne
There is still a strong supply of new housing stock coming onto the market in Sydney and Melbourne.
Though population growth is expected to remain strong in these key cities, the supply of new homes could keep a lid on prices, especially in areas where there are high rates of construction.
Increased first-home buyer activity
Government incentives have increased the share of first-home buyers entering the market, and with prices softer, first-home buyer activity is likely to stay firm.
Tax changes under a possible Labor government
After the political shenanigans that went on in Canberra in 2018, some say it’s more likely we will see a Labor government in power this year.
The Labor government has proposed that negative gearing will only apply to newly built properties, though existing properties that are negatively geared can remain so.
If this policy is introduced it could weaken prices, especially for units.
However, the policy was floated when property prices were booming.
Now that the market’s softer, the Labor party may reconsider the proposal.
A nation made up of many property markets
Of course, Australia is a vast country and property prices in every city and town in the nation are dictated by that region’s own social, economic and political circumstances.
Some markets will outperform others this year.
For example, Domain is forecasting that the Brisbane house market will rise 4 per cent this year and the Perth market to rise 5 per cent after both spent years in the doldrums.
On the other hand, Domain is expecting Melbourne house prices to fall 1 per cent this year and Sydney prices to be flat.