The state of housing markets in Australia's capital cities will be virtually unrecognisable in a few short years, a startling forecast reveals.
Stark forecasts for home prices across the country are tipping mammoth growth in the next three years, according to a leading economics firm.
House prices in Sydney are predicted to reach an average of nearly $2 million by 2027, thanks to anticipated rate cuts and a supply shortage, research by Oxford Economics Australia predicts.
And it's not the only capital city expected to post strong price growth, with Melbourne set to see growth in the order of 20 per cent and Perth tipped to be hammered by a 30 per cent increase.
The research, published today in the Australian Financial Review, paints a bleak future of deteriorating housing affordability.
Maree Kilroy, a senior economist at Oxford Economics, told the newspaper surging demand would continue to far outstrip the available supply of homes.
“You have a fundamentally undersupplied market and with net overseas migration running at half a million people, a growing participation by foreign buyers, downsizers and cash buyers, demand has outweighed the drag interest rates would typically have,” Ms Kilroy told the AFR.
To put the growth forecasts into perspective, look at where prices are now and where they're expected to be by 2027.
Oxford Economics Australia is also forecasting median unit prices to grow, although not as sharply as houses.
Home prices – houses and units combined – at a national level posted their 14th consecutive month of growth in March, according to CoreLogic.
Home prices began to slide in April 2022, coinciding with speculation the Reserve Bank would begin hiking interest rates, which it did the following month.
Its multiple increases, which inflicted severe pain on mortgage holders, saw national dwelling values slid 7.5 per cent until January 2023 when the market bottomed out.
Since then, home prices nationally have rebounded by 10.2 per cent. In dollar terms, that equates to more than $71,000, CoreLogic reported.
“At one end of the scale, we have Perth's housing market where values were up 1.9% over the month, followed by Adelaide and Brisbane with 1.4% and 1.1% growth,” the firm's research director Tim Lawless said of March's results.
“The remaining capitals are showing much lower rates of change, although Melbourne is the only capital city to record a negative quarterly movement, down 0.2 per cent over the first three months of the year.”
To put the market's extraordinary movements into perspective, home prices in Sydney are 25.4 per cent higher since the onset of Covid in early 2020.
In Brisbane, they've surged 55 per cent on pre-pandemic levels, while in Adelaide they're 57 per cent higher and in Perth they're up 56 per cent.
“The diversity in housing value outcomes can be explained by significant differences in factors like housing affordability, demand-side pressures from population growth and shortcomings in housing supply,” Mr Lawless explained.
“Focusing on the extreme growth conditions in Perth, despite such a rapid pace of capital gains, housing values remain relatively affordable compared with the larger capital cities.
“Housing remains in short supply and purchasing demand is still high due to interstate and overseas migration rates that are well above average.”
Nerida Conisbee, chief economist at Ray White, said high demand is unlikely to ease any time soon, especially when looking at the latest population projects from the Australian Bureau of Statistics.
“While getting long-term projections correct is notoriously difficult, the reality is that in the next 48 years we are very likely to have a much bigger Australia,” Ms Conisbee said.
“The ABS estimates that there will be around 13 million [more] people. Based on this, and a continued decline in average household size, these people will require around 6.2 million new homes.”
That equates to about 129,000 new homes needed every single year for the next 48 years, Ms Conisbee said.
“By 2037, Melbourne is set to be bigger than Sydney and then continue to see far greater rates of population growth than the rest of the country.
“Of the 6.2 million new homes required, Melbourne will require around 22 per cent of them. Sydney will follow, requiring 15 per cent and then Brisbane at 8 per cent.”
In June, the Federal Government's ambitious housing supply targets come into effect, with 1.2 million homes hoped to be built in the coming five years.
But before the starting gun has even been fired, experts are concerned there's little-to-no hope of the goal being met.
The latest data from the ABS on lending for the purchase and construction of new homes lifted by 3.6 per cent in February compared to January but was lower over the quarter compared to the same time period last year.
Housing Industry Association chief economist Tim Reardon said the number of loans issued over the past year is at the lowest level in two decades.
“This is a deeper and more sustained downturn in lending for home building than any other period observed in the past 20 years,” Mr Reardon said.
“This low level of lending is consistent with other leading indicators of home building activity, such as new home sales and building approvals, which continue to signal an ongoing slowing in the volume of homes commencing construction.”
The number of housing approvals fell by one per cent in January to a seasonally adjusted figure of 12,850.
In order to reach the government's target, at least 20,000 new homes will need to be built every month from July for the next five years.
The HIA recently convened a meeting of leaders from the construction sector and the sentiment was far from positive.
“The overwhelming consensus of the group was that the government's housing targets cannot continue to be just another 'aspirational target' but must result in the actual delivery of these much-needed homes,” HIA boss Jocelyn Martin said.
In January, New South Wales Premier Chris Minns admitted the state won't meet its own housing supply targets this year.
And Mr Minns said he couldn't commit to meeting further annual targets under the agreed National Housing Accord.
*** Credit - News.com.au - Shannon Molloy