Property experts have got good news and bad news for homeowners in Australian capital cities in 2016. The bad news for Sydneysiders is that growth is expected to stagnate.
“It will be a flat year for Sydney property prices this year”, says Domain chief economist Dr Andrew Wilson. “I’ve been predicting up to a 4% property price growth rate in Sydney, and about the same nationally. Economic circumstances are now set to deteriorate and it will be a year of circumspection.
“The days of double digit growth are behind us. It has been a cathartic experience. It does show how interest rate-sensitive suburbs are.”
The good news, according to Dr Wilson is, “markets like Brisbane, Adelaide, Canberra, Hobart and Melbourne will keep ticking over rather than moving backwards”.
Upcoming property data in the weeks ahead is likely to confirm a significant shift backwards in house prices growth during the December quarter, particularly in Sydney despite strong supply and demand fundamentals in place.
The last time the country saw such a pullback in prices was in wake of the 2008 global financial crisis.
But some suburbs are going to hold up better than most. So how do you tell if property in your suburb is headed for a price fall?
According to two of the country’s most prominent property economists, there are five tell-tale signs that prices in your local area are likely to come off the boil or take a dip in favour of home buyers.
UNEMPLOYMENT RATES
When unemployment rates are high and less people have jobs, people simply do not have the extra income to meet mortgage repayments or to invest.
A prime example of the impact of higher unemployment is what happened to the outer Brisbane suburb of Logan after the 2008 financial crisis.
“Logan is an affordable suburb,” said Dr Wilson. “With a lot of established infrastructure, mid-to-lower prices and it yet has struggled to have any real price growth as unemployment was above 10 per cent. But property prices are now starting to improve as unemployment rates fall.”
House prices in Logan are slowly, but surely on the rise. This five bedroom house at 8 She Oak Street in Logan Central is on the market for $359,000. It last sold for $241,000 in 2006.
INTEREST RATES
This is important no matter where you live, but it’s important to think about. Interest rates reflect the value of your cash. If the benchmark for rates is low, home loan repayments will be less, but so too will the amount of money that can be earned in a cash account.
“The key is what you think is going to happen to interest rates,” said Nicki Hutley, chief economist at property consulting firm Urbis. “That is one of the reasons why I don’t think this cycle will be sharp because outlook for rates is soft.”
SUPPLY DYNAMICS
Assess how much new development is actually happening in your local area and see whether this is in units or detached homes.
WAGES GROWTH
If wages are not growing in your area then it is unlikely that people will be able to bid higher for property prices.
THE VIBE
This best describes the sentiment on the street about your area.
“Ask yourself, what is the feeling like of an area,” said Ms Hutley. “Is the local park kept well? Are lawns being mowed? Are there new and trendy shops opening up or are businesses closing down?”
WHAT ELSE IS DRIVING PROPERTY PRICES?
Renewed weakness in the Chinese economy remains a highly talked about issue as investors worry that share market shock waves and forecasts of slower growth in the world’s second largest economy will lead to less foreign money flowing in to prop up Australia’s residential property market.
But Ms Hutley said the picture on the Chinese economy is still a difficult one to read given limitations on publicly released economic data.
Compounding the problem in some areas is unemployment due to changes in the manufacturing industry, particularly in the automotive sector. Elizabeth, in northern Adelaide, has already been affected, as well as the north and western suburbs of Broadmeadows and Campbellfield in Melbourne.
In Tasmania, Hobart and Launceston experienced high unemployment through the GFC but now that appears to be improving and so too are property prices.
The risks of property prices remaining flat or falling in the year ahead are likely to affect consumer sentiment and that’s why Dr Wilson believes the Reserve Bank of Australia (RBA) could possibly cut rates in 2016 below the current historical low of 2 per cent.
Rates have been on hold since May 2015, and many experts had initially argued that lower rates put upward pressure on house prices.
But Dr Wilson doesn’t think that will be a concern this year. “I doubt the RBA will be worried about overheating the property market by cutting rates again. This time they will be more concerned about safeguarding the economy against a global recession,” says Dr Wilson.