As interest rates rise, property price forecasts tend to carry a theme of negativity. The question is, should buyers and homeowners worry about these forecasts?
Direct Collective CEO and Sunshine Coast property expert Mal Cayley says an emphatic “no”.
“Banks have a 100 per cent record of being 100 per cent wrong on property market predictions longer than 12 months,” he says. “It’s interesting that the largest fall we have seen in the last 40 years at a macro level is 8.6 per cent, yet banks are predicting that the circumstances are so dire, that we should expect greater falls now.”
Mr Cayley says from a macro perspective, there is a significant national undersupply. “It is so bad that the federal and state ministers recently convened to discuss the crisis, with the result that Australia is about to open the doors to over one million new residents over the next few years.
“This will place greater pressure on housing, making it unlikely prices will fall dramatically.”
Ray White Property Group chief economist Nerida Conisbee says, “Although I am 100 per cent sure that all property forecasts published right now won’t be exactly correct, one thing we can be certain about is that the property market is entering a new cycle.”
While Ms Conisbee notes house prices are sensitive to interest rates, she says it’s not the only factor to influence price growth. “These include the underlying health of the economy, prospects for population growth, urban regeneration and infrastructure improvements, access to finance [ease of lending], increasing wealth, government policy towards property, and the level of household debt.”
However, she says when markets enter a new cycle, there is typically fewer new listings coming to market as sellers are more cautious. This lack of new stock on the market creates a challenge for buyers to find quality property.
“A big challenge right now is a shortage of stock for sale. For these reasons, in a slow market, highly desirable properties are well sought after and will often defy expectations.”
Additionally, rising construction costs will increase the cost of new and renovated properties, thereby increasing the replacement cost of all existing properties.
“Right now, construction costs are rising rapidly, and longer term they will have a major influence on house prices.”
Ms Conisbee also notes that rising rents are likely to make buying a home to live in more attractive.
“Similarly, rising rents are good news for investors – while most investors buy for capital growth, having decent rental returns is a major positive.”
The local outlook
The Sunshine Coast has the largest undersupply of property of the top 10 largest urban areas and has lost almost 4000 rental properties to owner-occupiers. Coupled with that, we have the most infrastructure investment per capita (both public and private) of any of the 10 largest urban areas. What this means is that the economy has a better footing to face economic headwinds than other areas, increasing demand for property and a growing undersupply, meaning that prices will be underpinned for some time to come. Moreover, the horrendous and growing lack of rental properties will continue to drive rental prices underpinning investment.