Future Tense

Market predictions prove the crystal ball is never clear when it comes to property values, writes Harvey Grennan.

The difficulty of predicting real-estate price trends.

People in the property-forecasting business are notorious for getting it wrong, but they really outdid themselves in 2016. The real-estate market was supposed to cool, remember?

The regulators and banks were getting tough with investors, who were pushing genuine home buyers out of the market. Home building was at record levels, which would push up supply and dampen demand. There would be an oversupply of units, which would send prices south (this may actually happen in Melbourne and Brisbane).

But then the RBA cut interest rates again – twice.

Investors came back with a vengeance when they realised capital gains were still alive and well. The one thing that might have helped – the reform of negative gearing – became the devil incarnate for those who have the power in Canberra.

So what did happen to real-estate prices (of houses and units) in 2016?

According to the CoreLogic Home Value Index, capital-city values shot up at their fastest pace since 2009, by another 10.9 per cent (15.5 per cent in Sydney), and have almost doubled in Sydney and Melbourne since the GFC in 2008. Houses rose in price at almost twice the rate of units – so much for the experts and the regulators.

However, the picture was far from uniform across the nation. While prices rose sharply in Melbourne (13.7 per cent), Hobart (11.2 per cent) and Canberra

(9.3 per cent), the resource capitals had marginal gains or went backwards.

Perth prices fell 4.3 per cent, while Brisbane managed a gain of just 3.6 per cent and Darwin a meagre 0.9 per cent. (Perth and Darwin did show some signs of recovery in the final quarter of 2016.)

“Capital-city growth rates have also shown a growing divergence between the broad housing product types,” says Tim Lawless, head of research at CoreLogic. “Over [2016, we saw] capital-city house values rise by 11.6 per cent, while unit values have increased by roughly half the pace at 5.9 per cent.

“The divergence in growth rates is the most distinct in Melbourne and Brisbane, where concerns around unit oversupply have eroded buyer confidence. Melbourne house values are up 15.1 per cent over the year compared with a 1.7 per cent rise in unit values, while Brisbane house values are

4 per cent higher over the year with unit values falling 0.2 per cent.”

Regional Australia has not shared in the boom, with the exception of some coastal and lifestyle areas. CoreLogic figures show median house prices in regional Victoria, Queensland and SA rose only between 0.5 and 1.1 per cent (for the 12 months to November 2016). Regional WA fell 7 per cent. Only regional NSW did reasonably well, with median prices climbing 7.3 per cent.