Pain Or Gain Predicting the future of real-estate values in 2018.

Will 2018 be a year of price growth or decline for real estate? polishes his crystal ball. Harvey Grennan

Australian real estate, at least in Sydney and Melbourne, has recently undergone one of its periodic booms. Although such growth spurts have been happening since the 1880s, it’s still difficult to predict what will happen next. Will there be further growth, albeit more moderate, or will the doomsayers who predict a 40 per-cent price crash be proved correct?

While most property analysts discount the possibility of a huge price correction, household debt levels in Australia are very high and gloom could become doom if China, our biggest trading partner, suffers a major economic downturn.

The primary factor affecting housing prices is mortgage rates. Will they go up or down? Dr Andrew Wilson from the Domain property website thinks there might be another cut but, more likely, rates will remain where they are well into 2018.

Will the unprecedented level of construction continue? How much of what has been approved will actually be built? And will wage growth pick up? These are questions that CoreLogic researcher Cameron Kusher identifies as worth keeping in mind. Meanwhile, Jodi Birch of BIS Oxford Economics warns that many markets are building more dwellings, particularly units, than demand warrants.

Kusher says interest-rate levels will largely depend on whether regulators further tighten the lending rules for investors. “Increasingly, lenders will fight to be more competitive on principal-and-interest, owner-occupier mortgage rates,” he says. “We suspect that owner-occupier rates may push a little lower, while the direction of interest-only and investor rates is much less clear.”

What of particular markets? Birch expects price rises to be more subdued in Melbourne and Sydney, with modest rises in Brisbane and Adelaide. “The momentum in the Canberra and Hobart markets is forecast to continue, and we expect the recent price falls in Perth and Darwin to reach a trough,” she says.

The rate of growth has already slowed from its peak in Melbourne and more so in Sydney, adds Kusher. “It’s not out of the realm of possibility for values to fall in both these cities – but most likely in Sydney – given how strong growth has been over recent years and how much affordability has deteriorated.

“Hobart has accelerated and may continue to see quite strong growth, while Canberra could also see an acceleration,” Kusher says. “Perth and Darwin may finally start to see the declines abate; however, growth still looks to be some way off. Brisbane and Adelaide have fairly consistently been seeing only moderate growth, and their direction will largely depend on the strength of local economies and migration trends.”