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The current phase of the property cycle will eventually come to an end, and the likely cause will be rising interest rates and the deterioration of affordability.
All hints from the Reserve Bank and other financial institutions however seem to indicate that interest rates will remain low for some time and may go even lower before rising again.
According to a recent report from BIS Shrapnel, low interest rates will support further price growth in undersupplied residential markets in 2015 and 2016. The report forecasts that interest rates will start to rise towards the end of 2016 creating conditions for some price declines in some cities and in over supplied areas from 2017.
Price growth in Melbourne has averaged 9% per annum from 2013 however median house price growth is forecast to slow down to a 5% rise in 2015/2016 before a small fall in 2017-2018.
Interestingly, the doomsday predictions for the residential market are not likely to materialise. A combination of increasing housing supply, the prospect of a tightening in interest rates and affordability will however impact prices, but any downturn should be similar in magnitude to that seen in 20十一-20十二 according to BIS Shrapnel.
House prices generally collapse when large numbers of families are forced to sell their homes and there are not many buyers willing to buy them. For this to happen it requires some large scale economic crisis, which in turn leads to high unemployment and high interest rates putting a strain on household finances and forcing many people to sell.
BIS Shrapnel’s head of research, Angie Zigomanis is concerned with the explosion in apartment construction which in his view is creating an imbalance in the supply of detached houses and units.
However due to changes in our household demographics, with the size of each household shrinking and an ever increasing number of single-person households, demand for unit and apartment style living is on the rise. Most capital cities are building apartments at record rates to meet this demand.
Melbourne incidentally is the fastest growing capital city in Australia, which means demand for property should remain strong. |
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