Domain forecasts more property price boom

Domain has released house price forecasts, which tips strong growth for both 2020 and 2021:

In particular, Sydney house prices are projected to grow by 13% to 15% over the next two years, whereas Melbourne’s are projected to grow by 11% to 13%, and Brisbane’s by 15% to 17%.

If true, Melbourne’s median house price would top $1 million and Sydney’s $1.25 million.

For mine, Sydney’s and Melbourne’s forecasts for 2020 look about right, given the strong lift in housing finance and current strong momentum:

However, Brisbane’s looks too strong, as does Perth’s.

2021 is the biggest question mark with affordability constraints fast approaching at the same time as the economy softens (likely driving up unemployment and reducing income growth).

The fallout from the coronavirus is also a black swan that could potentially drive the economy into recession and cancel the Chinese bid.

For what it is worth, my base case is for momentum and price growth to slow to a crawl by year’s end, with outright price falls possible in 2021. But the situation is obviously fluid.

Leith van Onselen
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Comments

  1. Prices looked like they were stalling, and the Wuhan Virus could hurt Australian GDP. Still the government can always open the gates to increased immigration to stimulate via “Quantitative Peopling”.
    If China is too virus laden, then there are many Indians looking to get in, too, which will boost housing demand.

    Perhaps we can give free visa for those willing to buy a house, and a grandparent visa for those willing to buy a flammable flat.

    • Strange EconomicsMEMBER

      Problem is apartment developers need customers –
      many the Chinese can afford to buy apartments, while many of the Indians only help increase rents.
      The average income for China is 5K per year, and many are able to buy apartments of 500K .
      Average income for India is 1.5 K .

      • Increasing rents and buying apartments is the same thing.

        If rents increase due to subcontinentals (or whoever), then the Aussie investas will buy the apartments to collect the sweet sweet rent.

        • Jumping jack flash

          pack ’em in and raise the rent. Instead of 12 to an apartment, pack in 16. Increase rent 5%.
          Simples.

  2. If there isn’t a global slowdown in 2020, then I would agree, given the irrationality of markets and practically 0% interest rates mean money is chasing a home for growth. But I suspect it can’t last much longer. Who can afford it? I’m still voting for any political party that will curtail this mess and do something about affordable housing.

  3. reusachtigeMEMBER

    Nah, I believe the sunshine tea leave reading guy… “there’s gonna be a crash” … NAWT! LOLOLOLOL

  4. I am about to find out if this is true. My Banyo, Queensland property goes on the market Friday and inspection on Sst.

    • I’ll keep you all posted on how it goes. Glad to be getting out of Australian property. Everything is going great over here in the US. Loving being back and out of Australia

  5. APRA has stopped caring about lending standards and the green light has been given to bank mortgage fraud.

    • We have seen this movie many times now. Next step is some hand-wringing from the various policy authorities and parroted nicely by the talkie-heads in media. Expect some talk of affordability issues “if this continues” (while not specifying how long that may be) as well as speculation that a bubble could develop (without specifying what metrics that would require). Depending on how feverish things get with the impact of the FHOG that is probably all we will see this year in terms of action to constrain price increases (ie none).

      That leaves 2021 for the next phase which is discussion of the need for MP(lol) in which we will see the same authorities and talkie-heads ensure that the gate is gently shut long after the last little horse has exited. How much higher will prices be by then? I’d guess a good 40% in Sydney, not sure about other locations. Not as wild as the last cycle but a decent surge nonetheless.

      Of course if the Coronavirus gets serious then we may see a directors cut ending to our movie which, as always, never pleases the rusted-on fans. MB has always predicted a global shock ending our dream run I suppose but I wasn’t expecting it to be a pandemic.

      • Jumping jack flash

        ” Not as wild as the last cycle but a decent surge nonetheless.”

        It must be greater if we’re going to re-enact 2006. 2006 is the banker’s peak. Everything being done today is so we can get back there “one day”.

        “Expect some talk of affordability issues …”
        “Affordability” isn’t a thing, it is a ruse that is thrown up to make people think that banks actually care. It is a distraction so people don’t actually realise that debt is absolutely 100% necessary and the real problem is debt availability and the managing of the constraints around debt distribution. Currently these are the limiting factors. Certainly not “affordability”. Everything is affordable if I have enough debt to buy it.

        I could own 10 Ferraris if the bank would give me enough money.

        Another way to look at it is “affordability” is the symptom. The actual problem is people being able to get the green light for obtaining the amounts of debt that are necessary to be able to afford it.

  6. Jumping jack flash

    Excellent.
    We currently have 2 trillion debt dollars at a cost of about 10 billion a year, maybe a touch less, but we desperately need 7 trillion debt dollars by 2030 and much, much lower interest rates to get this economy humming like it was back in 2006.

    Standard houses are approaching 2 million each, so in 20 years, around 2040/2050 these same houses should be about 10 million.
    In 2050 FHBs living in tiny houses (shipping containers) will be the norm.
    78K will *STILL* be the average full time earnings before tax thanks to wage theft and population growth.
    Full time positions will be extremely rare and working 20 “gigs” a day will probably be what is required to scrape this together.

    Everything is on track for a glorious future for Australia.

    • Excellent.
      We currently have 2 trillion debt dollars at a cost of about 10 billion a year, maybe a touch less, but we desperately need 7 trillion debt dollars by 2030 and much, much lower interest rates to get this economy humming like it was back in 2006.

      Standard houses are approaching 2 million each, so in 20 years,

      Yes yes, now you are seeing it for what it is. The houses don’t go up – the dollars just multiply and get devalued.

      And god knows this can go on for a long time. Lose 50% of value? No problem. Can lose another 50%. And then another 50% again. The maths is easy.

      While we have resources to export, this can be a very long game indeed.

      • Jumping jack flash

        Yes I’ve been aware of this for quite some time. The duality of what should happen and what will happen is of course governed by reality and I’m first and foremost a realist, if not a little extra cynical, but reality is always a little extra cynical in my experience.

        The tricky part will be the rules they have created around the volumes of debt… they will need to define a whole set of new rules after a while to enable this debt dance to continue. What I mean by this is that available debt is still related to income. However incomes are not affected by debt. This is currently the limiting factor and this constraint must be broken or the debt-economy will always be hobbled.

        • There is still a bit of life in:
          -reduction of interest rates;
          -cheapening the means of subsistence;
          -crimping lifestyle;

          The next phase of expansion of the debt barrier is harder to predict, but I do think that something like a UBI could enable a breakthrough. The banks would be salivating at this.

          I mean even something as modest as $10,000 per year. That’s $20,000 per year per household. At 3% interest rates, that could service an extra $400,000 worth of loan, easy. And it’s government-guaranteed income – the fuсkers would fall all over themselves to lend against that.

          It will be a sweet irony when the lefty dream of UBI will get hoovered up by the 1%/banks and also the boomers (as its capitalised into the values of their assets). The diсkhead UBI recipients just end up with more debt and more interest.

          • Jumping jack flash

            Interesting and you may well be correct.
            Since debt is absolutely 100% necessary, and the banks will baulk at “risk” (even though the debt-induced asset price inflation takes care of the risk) an easy way for the government to apply “welfare” to banks to keep them happy and lending is through a UBI which would almost certainly be used to obtain necessary debt.

            They’ve been doing this to the economy since the 70s or whenever the dole was invented. It’s economics 101, I even learnt that one at high school yr 11.

            Why not apply the same principal to the banks? Genius

  7. John Howards Bowling Coach

    China is the black swan event this time. In the 2008/09 crash China snuck into the global opportunity and hoovered up a LOT of Assets, it was supposed to be them riding to the rescue, but in fact it was them making out like bandits, and they have done so ever since. Most people in the world have no idea haow small indeed the economy of China really is and the CCP know it, so by printing money as fast as possible and now nationalising everything they can they have made it look like it is still afloat by grabbing hold of all the export facing industry and officially restricting every $dollar of hard currency (a LOT still slips out, hence the flow of money in our Real Estate and many other places).

    But China has been struggling economically for the last year at least. I talk to friends who still run large businesses there and they are all doing in tough, even in supposedly solid growth industries.

    COVID 19 will and has brought all of that unstuck. If you make or sell masks, googles, and gowns you are likely booming, but you might also never get paid.
    All of the wine exporters for example in Australia (Chinese exporting wine to get a VISA mostly, not actual wineries) are going be get burnt as most will have sent their stock on credit, likely to themselves in China and on-sold most of their stock before Chinese New Year, and COVID 19 took hold. So if sold to a retailer for example, they would still have the stock and no buyers, if sold to other channels, also a big issue. Most of these sellers I presume have just burned their money, as Chinese New Year is the 1 big selling opportunity for the whole year. Multiply that by dozens of other markets and channels and you can see that the timing of this outbreak in China is a national disaster for them, and due to the fragile state of the global market, especially in Australia, and you should join the dots.

    We are heading into a storm, a lot of boats are going to be washed out to sea and the whole marina is likely to be trashed.

  8. I think they will raise interest rates when you least expect it, and people will panic.
    I also think the boomers, as they really get older (next 15 years or so) and need to sell their PPOR for the luxury seniors’ village are watching the market like hawks, and the first sign of a significant downswing they will all bail…it’s their nest egg and they want that profit. Their children currently feel very safe because mummy and daddy have big house in Haberfield, but when it comes to the butt-washing stage those kids are gonna be putting that house on the market to fund the luxury care their entitled boomer parents demand. This generation is not going down without a fight. They will stay in their 4 bedroom houses in the inner ring for as long as humanly possible..until they can’t due to ill health. But there will be a LOT who reach that stage around the same time. Next question, what do you do with all of those heritage listed inner ring houses when a developer doesn’t want to pay the price tag (they can’t knock them down for units), and most of the younger gen are already mortgaged up to the eyeballs? It will be interesting to see it play out. And for the argument that the kids will just move in, that is one less giant house being occupied by one person, and now occupied by a family. That reduces your rental cannon fodder.