Property predictions for 2021 revealed

Where will our property markets be in 3 years?

That’s a question people are asking now that our real estate markets have moved to the next stage of the property cycle – one of falling property values in some areas and slower growth in other locations.

We are now seeing the predicted softening in both the Sydney and Melbourne markets after many years of growth.

First time home buyers are surging back into these markets replacing some of the demand left by retreating investors.

While there are a lot of property pessimist out there, one group of forecasts — those by BIS Oxford Economics suggests we are in for a soft landing.

Their Residential Property Prospects 2018-2021  report, which predicts the Australian property market outlook, has been getting a lot of press lately, so I thought I’d share their conclusions with you and give you my thoughts.

Of course we know the main purpose of property predictions- to make meteorologists look respectable.

Currently there is no shortage of “experts” trying predict the Australian property market outlook .

Then there are all those online research reports telling you where to invest in next growth hotspot.

Fact is: meteorologist tend to predict the weather better than property commentators predict future property capital growth.

Now this doesn’t mean you shouldn’t listen to the experts.

You should…

But you must also understand the level of accuracy of their predictions and take that into account when investing.

Before I share them with you, I checked back on the track record of BIS’s past 3 year housing market forecasts and their track record is mixed.

Sometimes they overestimated property price growth and in other years they were unnecessarily pessimistic.

To be fair…few researchers make definitive forecasts, particularly beyond twelve months.

BIS Oxford Economics is the only company I know which produces residential real estate forecasts over a three year horizon and places them in the public domain in June each year.

So what’s ahead?

House price growth around Australia has been slowing in recent months, led by falling values in many locations in Sydney and Melbourne, Australia’s largest and most expensive property markets.

That trend looks set to continue driven by tighter lending standards from Australia’s banking regulator – APRA at a time that our banks being allergic to risk following their belting in the Royal Banking Commission, along with weak wage growth, affordability constraints, an increase in apartment supply.

These tighter lending conditions – the inability for many investors who could have in the past borrowed more –  are really having the same effect as a rise in interest rates.

They’ve slowed down demand especially the Sydney and Melbourne property markets

In short… we’re in for a soft landing with further price falls in the short term and the stabilising real estate values .

Taking inflation into account, modest price declines were forecast in most capital cities over the next 12 months.

And then all capital cities will turn around and show price growth over the next 3 years, but the results will be fragmented.

BIS suggests the current slowdown is due to tighter lending criteria, particularly a crackdown on interest-only loans, and record levels of dwelling construction being completed (above 200,000 per year), which may lead to an oversupply in some states.

Our research suggests there is already an oversupply of inner CBD apartments already – especially in the Brisbane, Perth, Canberra and to a much lesser extent Melbourne property market.

And the good news is that our housing markets won’t crash, being underpinned by record low interest rates, a “relatively stable, albeit subdued, economic environment” and strong population growth.

But there should be some “upside” from 2021, as “high net overseas migration inflows [are] likely to be sustained in the coming years” — and “economic conditions begin to strengthen and supply falls back below underlying demand”.

Population growth will absorb the huge supply of new dwellings from the recent construction boom, although any growth in rental will be minimal, according to BIS.