The property market in 2019 vs 2020

With a strong 2019 for the Australian residential property market, we sat down with Bradley Wearne, Head of Research at leading Property Investment Advisory Meridian Australia, for insights into the performance of the market in 2019 and what is expected to occur in 2020.

2019 market overview

Based on research from CoreLogic [1], 2019 saw dwelling values rise by 1.1% in December and by 4% in total over the last quarter, finishing 2019 on a positive note. This rapid growth is the fastest seen over a 3-month period since November 2009. This marked a swift turnaround from the growth initially recorded in the first half of 2019, which was driven by negative sentiment.

There are many reasons for the negative sentiment including: Haynes Royal Commission into Banking, federal election uncertainty and fears about overseas economic problems such as USA/China trade war and Brexit. 

The market rebound in the last quarter of 2019 was lead by strong price growth in Australia’s largest capital cities; Sydney and Melbourne.

In December 2019, both Sydney and Melbourne recorded the highest annual capital gain, with both cities posting a 5.3% rise in dwelling values over the year.

According to Head of Research at CoreLogic, Tim Lawless:

“The positive year-end results mask what has been a year of two distinct halves – we saw capital city dwelling values fall by 3.8% over the first six months of 2019 and then rebound by 7.0% over the second half of the year.”

Why was the market declining in early 2019?

In the first half of 2019 the Sydney and Melbourne markets continued to decline, but since bottoming out in June, the house prices have bounced back strongly. The catalysts for the turnaround came from three successive interest-rate drops, tax cuts stemming from the federal election and the banks relaxing their lending criteria.

Despite strong growth in the latter half of the year, property values remain lower than previous peaks, shown in the table below:

Source: CoreLogic

Predictions for the market in 2020

In 2020 the housing affordability will continue to have a large influence over price growth. 

As dwelling completions rise over the first half of 2020 and favourable lending continues to support price growth, the surge in detached house prices in Sydney and Melbourne is not expected to be sustained beyond the first half of 2020.

It is anticipated that the current sentiment will see prices return to their previous peak in as little as 6-12 months, at which point price growth is expected to moderate as affordability constraints limit further gains.

With wage growth at record lows and dwelling values continuing to rise, we are likely to see a slowdown in capital growth in areas where mortgage rates are higher relative to income.

According to leading analysts BIS Oxford Economics [2]:

“Sydney and Melbourne are expected to outperform the other capital cities over the next three years, given their recent recovery, strong population growth, and solid economic fundamentals.

Brisbane has attractive affordability and an emerging dwelling deficiency which will underpin solid price growth, while Hobart is experiencing a resumption of stronger growth due to supply shortages. Moderate price rises are forecast for Adelaide, Perth and Canberra, while Darwin is expected to begin to show signs of a modest recovery by FY21.”

If you would like to get further insights into when, where and exactly how to invest in the Australian residential property market in 2020, reach out to the talented team at Meridian Australia here. Don’t forget to keep on the property market pulse by following us on LinkedIn.

 


Bradley Wearne – General Manager at Meridian Australia
Phone: (02) 9939 3249
Email: [email protected]
Website: www.meridianaustralia.com.au 

 

References

[1] CoreLogic – Hedonic Home Value Index, December 2019 Results – https://www.corelogic.com.au/sites/default/files/2020-01/CoreLogic%20home%20value%20index%20Jan%202020%20FINAL.pdf

[2] BIS Oxford Economics – Residential Property Prospects, December 2019.

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