Another house price surge predicted in hot markets

By Jack Derwin

April 10 2017
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Despite many suggesting that property prices in Sydney and Melbourne will mellow over the next twelve months, one economist says we should be expecting more growth instead.

Another house price surge predicted in hot markets

With Sydney house prices doubling since the GFC and Melbourne not too far behind, many remain doubtful that such growth is sustainable.

There is one dissenting voice however. ABC Bullion chief economist Jordan Eliseo has predicted that a soft Australian economy would see the RBA slash official interest rates, driving even more property price growth.

“I think the RBA is going to be forced to cut rates before too long which will stimulate more buying and there’s still more of a foreign property bid as well, particularly in the Sydney and Melbourne markets which has not fully played out either,” Mr Eliseo told Nest Egg.

“I definitely wouldn’t be surprised to see another 5 to 10 per cent of upside in the Sydney and Melbourne markets.”

With the latest string of regulations announced just two weeks ago from APRA and ASIC, Mr Eliseo said the RBA will now be more comfortable to cut rates to further to stimulate a soft Australian economy.

“If you look at what’s happened over the last few weeks with APRA and ASIC as well as the RBA warning on property, I think what we’re basically seeing is the baton being passed to APRA in particular and that will provide the cover it needs to justify its next round of cuts,” he said.

“I think rates will be at least 1 per cent in Australia, possibly even a fraction lower given that unfortunately the Australian economy outside of Sydney and Melbourne is incredibly soft and I think at the end of the day, the RBA has a mandate to take into account both inflation and unemployment right around the country, not just bubble management in Sydney and Melbourne.”

Despite greater investor lending regulation, auction clearance rates over the weekend averaged around 80 per cent for both Sydney and Melbourne.

While there remains potential further upside in the two property markets, Mr Eliseo warned investors against chasing speculative growth.

“That doesn’t mean they’re good investments and the yields are certainly atrocious right now. Buyers getting into the market now are trying to catch the last wave, as it were, before the tide goes out,” he said.

“That’s certainly not what a value investor or a prudent applicator of capital would do, but I still think a lot of people will.”

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