Douglas has forecasted the following 10 property market trends for 2018:
1. House prices to grow. We saw prices drop slightly at the end of 2015, and we’re seeing this again at the end of 2017 – possible evidence that prices could rebound once more.
Overall, I think we’ll see the median house price grow by around three to five per cent in 2018, but I’m expecting the market to become increasingly nuanced, with some areas experiencing as much as 10 per cent growth while others could go down as much as five per cent. Whilst I anticipate a modest increase in the median house price, I believe that the median unit price will stagnate.
2. Rates to remain unchanged. The real estate industry sometimes thinks the world revolves around it. However, although real estate is a significant factor in our economy, property prices are not actually one of the underpinning verticals of the Reserve Bank of Australia’s (RBA) charter – a rate decision is primarily focused on our currency, full employment, and the economic prosperity and welfare of people in Australia.
We do have to remember that interest rates are not localised, and we need to avoid parochial insularities as any changes would have widespread ramifications across some of the more vulnerable markets around the country. I don’t expect rates will change over the next few months and anticipate we could even get to the end of next year without an increase.
This is a good thing for homeowners, because a lot of people overstretched themselves in the recent housing boom. A prolonged or continued period of stability allows them a bit more breathing space to restructure their finances.
3. Rent increases – in some areas. As buyers continue to find it difficult to purchase property, an increase in competition for rental properties could see rents increase in some of Sydney’s more affluent suburbs next year. Higher interest rates on investor loans and harder access to interest-only loans could also see landlords trying to mitigate their increased holding costs.
4. The arrival of a fifth major bank. In 2018, a new player will emerge and turn the big four banks into the big five. I’m talking about the Bank of Mum & Dad.
We are encouraging first home buyers to enter the market, but with escalating prices it is more difficult than ever. Not to mention that first home buyers fall into a higher risk category for lenders, as generally they don’t have a long job history or established wealth. Parents often have a large amount of equity in their homes and they’re realising it might be better to support their offspring now when they most need it by releasing some of that equity, rather than leaving an inheritance down the track.
Unfortunately, the reality is that families can fall out just as relationships can break up, and I urge any parent considering this to have a formalised document professionally prepared by a solicitor to protect all involved.
5. Auction clearance rates of 60 per cent. While clearance rates of 70 to 80 per cent have been commonplace over the past couple of years, we are starting to transition back to a more normal environment. I anticipate a subtle shift in the supply and demand dynamic, with auction clearance rates likely to hover around 60 per cent for the best part of next year.
Rather than compare current or future clearance rates with the exaggerated levels of late, we should be comparing them with the 10-year average as this provides us with more perspective on market conditions.
6. Increase in days on market. Now that the market is less frantic, we are likely to see an increase in days on market from the current 30 days to around 35. Again, 35 days is still relatively short and is considerably lower than the 10-year average, but after the market we have just come out of sellers will need to adjust their expectations slightly.
7. Easing of macroprudential measures. As the market continues to settle next year, I wouldn’t be surprised if we see an easing of the recently introduced macroprudential measures. These measures certainly achieved their purpose, but I have an inkling that the guidelines will be relaxed towards the end of next year, thus making it easier for banks to lend money again.
8. Build quality. The recent tragic events at Grenfell Tower in London have seen a focus on combustible cladding, but this could be just part of the problem when it comes to build quality. The rush to get apartments built and sold in the housing boom meant shortcuts were taken. I’ve seen firsthand how poorly some of these apartment blocks have been constructed.
My fear is that some of them will quickly deteriorate and possibly even become dangerous, and it’s not inconceivable that we will be knocking some of them down within 20 years. I’m not a fan of red tape, but when it comes to people’s lives it is imperative. There has got to be better regulation around build quality and I predict it’s going to be on the agenda in 2018.
9. ‘In the box’ thinking. Sydney desperately needs more creative ways of living and we are going to start having more conversations around our city’s future, given the population has hit five million and is not showing signs of abating.
We have plenty of buildable land in Sydney’s North West and South West, but as affordability hasn’t eased modular homes might be the best solution. The recent sale of tiny homes in Melbourne has demonstrated an appetite for this style of living; however, I see them as nothing more than glorified caravans. Expect more sustainable modular homes to be the longer-term solution.
10. The rise and rise of regional towns. I think the Newcastle and Wollongong regions will be strong markets for housing due to affordability, the lifestyle these areas offer and commuting distance from Sydney – even the recent QBE housing outlook report showed affordability is driving migration between the capital and these regional hubs.
