Pundits have wasted no time forecasting what’s likely to happen in the Australian property market this year. Listed here are their four key predictions for 2017.
  1. Interest rates will increase.
After several years of declining interest rates that have pushed the country into a record low-rate environment, economists and industry experts are forecasting this might soon come to an end.

While more than half of the experts on Finder’s interest rate panel expect at least one cut in 2017, 26% expect a rate rise. To put this in perspective, there was no talk of an interest rate rise last year until September. If there is an increase in rates this year, it would be the first since November 2010.

Of those expecting a cut, the majority believe it would occur in the second half of the year. Others, including Mortgage Choice’s Jessica Darnbrough and University of Queensland’s Clement Allan Tisdell, expect a rise in March.

Other pundits consider the possibility of a rate rise to be highly unlikely.

Dr. Andrew Wilson, chief economist at the Domain Group, said it was “fanciful” to expect rates to increase. He says cuts are more likely due to the “very sobering GDP number” for the September quarter. 
  1. Apartment construction will decline.
A major feature of the housing market over the 2015-2016 financial year was the record level of dwelling approvals in Sydney and across Australia. However, there has been some softening, and this is likely to continue into 2017.

BIS Shrapnel, which provides industry research and forecasting services, said a 6% fall in building commencements for the 2016-2017 financial year was very likely, followed by further national declines in 2017-2018.

The latest BIS Shrapnel building forecast report shows that after reaching 230,000 building commencements over the past financial year, levels have reached a “turning point” with the attached apartment market set to fall 10.6%.

Chris Johnson, chief executive officer of the Urban Taskforce, notes that Sydney needs an additional 36,300 new homes every year for the next 20 years. 

“In boom times like we have now this should be over 40,000 yet the current yearly figure is only 30,319 new homes,” he said. “A significant concern with the number of conditions on approvals is that the banks are not lending on the basis of these extra costs so this is reducing the supply of housing in metro Sydney with the inevitable consequence that housing costs go up making affordability even harder for first home buyers.”
  1. Property price trends will continue.
It’s hard to expect the Sydney and Melbourne property markets to grow any more in value. However, experts are predicting that growth in these two markets will continue, albeit at a much slower rate.

Douglas Driscoll, chief executive officer at real estate agency Starr Partners, anticipates that “market conditions will not change a great deal from what we’re currently experiencing” with continued rises at a more subdued level.

“In the absence of further macro-prudential measures or an unexpected rise in interest rates, investors will continue to be prevalent; leaving scores of first home buyers still on the sidelines,” he said.
  1. It will be more difficult to obtain a mortgage.
Lenders and regulators will continue to tighten regulations, making it more difficult for borrowers to obtain a mortgage.

“I think we can expect more macro-prudential measures in 2017,” Driscoll said. “Lenders will absolutely become more prudent and fussy on what they lend on – even the International Monetary Fund believes property affordability in Australian is an issue and home owners are stretching themselves too far.”