Chief Economist at the Macro Investor Leith van Onselen shared his 12-month price forecasts for Australia’s capital city housing markets based on consideration of key price drivers: housing finance; housing supply; affordability; and the macroeconomic outlook.
Melbourne: -8% to -5%
Melbourne’s recent price performance has been poor, declining by 11.0 per cent (houses) and 7.4 per cent (units) since peak as at May 2012, according to RP Data-Rismark. Yet, despite the sharp decline in values, Melbourne’s housing market still offers the worst investment fundamentals in the nation and is the market most at risk of a severe house price correction.
Our baseline forecast is for Melbourne home prices to decline by between 5 per cent and 8 per cent over the next 12 months. This pessimistic view is based a wide range of considerations.
First, Melbourne home prices are the second-most expensive in the nation on a price-to-income basis, and owing to its very low rental returns, the most expensive when home prices are compared against rents. Melbourne’s housing supply is also relatively abundant, with the rate of construction running well above average, as are the number of homes for sale, which are nearly 20 per cent above last year’s levels.
There is also significant construction in the pipeline.