Good-buying opportunities in the pipeline as Melbourne readies for an upbeat 2017 real estate market

After four high-performance years that saw house prices in Melbourne rise by 46 per cent, the residential real estate market looks set to chalk up further solid growth in 2017, according to research group, CoreLogic. But analysts are also forecasting good buying opportunities in key areas as affordability constraints and the prospect of higher borrowing costs influence the direction of this year’s market.

The property sector ended 2016 on a high note. The auction market posted resilient clearance rates and many bullish prices were seen, particularly in Melbourne’s inner suburbs. A key indicator in real estate nationwide in 2016 was the way price growth in Melbourne and Sydney pulled sharply ahead of other capital cities.

This trend is likely to continue unabated in 2017, particularly in the house market, with sales in Melbourne assisted by the prosperity of the local economy, strong rates of international and interstate immigration and the city’s status as a “global” city. But CoreLogic’s research analyst Cameron Kusher sees fresh opportunities emerging for buyers in 2017 because of a recent easing in the rate of house price growth.

According to the CoreLogic home value index, capital city dwelling values edged a further 0.2 per cent higher in November.

“Although values rose in November, the month-on-month change was the lowest since December 2015, potentially indicating that the reacceleration of housing market conditions, which has been evident over most of the second half of 2016, may be starting to abate,” Mr Kusher says.

Although the pace of capital gains has moderated compared with previous months, the stronger conditions across most capital cities since the May and August interest rate cuts have pushed the annual trend of growth higher.

The combined capitals index is up 9.3 per cent over the past 12 months, after recording an annual growth rate as low as 6.1 per cent in July earlier this year. Sydney (+13.1 per cent) and Melbourne (+11.3 per cent) are both once again recording double digit annual growth, while Canberra and Hobart are now recording annual growth rates higher than 8 per cent.

Traditionally, property markets in the inner suburbs and affluent middle-ring areas are driven by the prosperity of the local economy. And currently, both Sydney and Melbourne have the fastest growing economies in the country.

Nelson Alexander sales director Arch Staver expects the Melbourne market to open strongly in mid-February after the six-week summer holiday break.
He says while there is a healthy level of listing activity for February and March, demand for quality property is continuing to outstrip supply. This augurs well for homeowners looking to trade up to larger property or downsize to something smaller.

Mr Staver says prospective vendors shouldn’t allow their selling plans to be unsettled by market distractions such as holiday periods, sporting events and economic and political news.

“Regardless of what goes on in an economy, the real estate market is almost always driven by supply and demand,” he notes.

One facet of the housing market that has changed over recent months has been transaction numbers. The number of settled sales reached a recent low point in August last year at approximately 36,000 settlements over the month. Since that time, settled transaction numbers have risen 16.4 per cent nationally to the end of November, and 21 per cent across the combined capital cities.

Mr Kusher says the bounce back in sale numbers could be the result of higher buyer demand fuelled by last year’s May and August interest rate cuts.
“If this is the case, renewed speculation that interest rates could move higher this year may dampen some of this renewed enthusiasm,” he says. “Most economic commentators seem to be aligned that the rate cutting cycle is over. Additionally, the ASX cash rate futures market is indicating that traders are also speculating that interest rates may move higher over the coming year.

“If we do see rate hikes in 2017, the likelihood is that they will be gradual and limited to only modest increases. The Reserve Bank is likely to be wary of increasing the cost of debt at a time when the domestic economy is still relatively fragile and the level of household debt is at record highs.”