Australian big city house prices are tipped to surge by more than a third during the next three years with Sydney‘s median price set to hit the $2million mark.
The increases forecast between now and June 2027 would be even more significant than the price rises since the onset of Covid four years ago, which covered interest rates aggressively rising from record-low levels as immigration soared.
Oxford Economics Australia is forecasting that Sydney’s median house price will hit $1.934million by June 2027, with Perth reaching $1million.
The median price in Melbourne and Brisbane was also expected to reach seven figures during the same period as prices rise between a third and 43 per cent.
Even before the rate cuts, Australian investor lending has increased 13.3 per cent during the past year in a sign buyers fear missing out on more price rises, new official lending figures released on Monday revealed.
This means average-income earners on a $98,218 salary, and with plenty of savings for a 20 per cent mortgage deposit, are being urged to shop around now for a suburban house or inner-city unit under $640,000 to avoid missing out on the boom.
Until the Reserve Bank cuts interest rates, possibly from late 2024, banks are only able to lend a borrower 5.2 times their pay before tax.
But once the rate cuts start, banks will be able to lend more, leading to even higher prices, with values tipped to particularly soar at the more affordable end of the market.
‘The November 2023 cash rate hike to 4.35 per cent is expected to be the last this cycle, with the next movement downward,’ Oxford Economics Australia said.
‘Anticipated interest rate cuts from late 2024, overlaid by a sustained housing shortage, are set to accelerate price growth in 2025.’
Sydney’s median house price was tipped to hit a new record-high of $1.933million in just three years – up 36.7 per cent or $519,271 from last month’s $1.414million level, based on CoreLogic data (pictured is the Sydney Harbour Bridge as seen from Observatory Hill)
Australia’s net overseas migration level hit a record high of 548,800 in the year to September but Oxford Economics Australia is expecting that to slow to 410,000 in 2023-24 and 250,000 by the 2026-27 financial year.
‘Net overseas migration is driving the current surge in Australia’s population growth,’ Oxford Economics Australia said.
‘While three-quarters of new overseas arrivals enter the rental market, which relies on investor supply, there remains a channel that is adding to the competition for established properties.’
The more affordable end of the property market is tipped to soar as baby boomers downsize and those aged 30 to 45 look to escape rising rents.
‘Strong growth in rents is likely having a spillover effect, encouraging some households to enter owner-occupation,’ the report said.
Price rises are tipped to grow by at weaker pace in cities like Adelaide and Hobart, that boomed during the pandemic but no longer receive a huge influx of interstate migration.
Canberra, now Australia’s second most expensive capital city market after Sydney, was tipped to slip into fourth place behind Melbourne and Brisbane by mid-2027 – even with a typical house price in the seven figures.
Sydney
Sydney’s median house price was tipped to hit a new record-high of $1.934million in just three years – up 36.7 per cent or $519,271 from last month’s $1.414million level, based on CoreLogic data.
This would be an even steeper increase than the 25.4 per cent rise in Sydney property prices since early 2020, including the peak two years ago.
The city is so dear the median apartment price was tipped to be in the seven figures within three years, climbing by 29.2 per cent or $245,656 to $1.085million.
Inner-city unit values in particular were tipped to soar, as rental vacancy rates remained near historically-low levels.
‘Support factors include affordability pressures, migration patterns, and weak apartment completion volumes intensifying competition, especially for available inner-city apartments,’ Oxford Economics Australia said.
Australia’s most expensive city is only affordable for couples buying a home, with a single investor having to travel 115km north to San Remo on the Central Coast where $676,824 is the mid-point house price.
But Auburn, 22km west of the city, has a mid-point apartment price of $535,025.
Sydney receives the biggest influx of overseas migrants but also the biggest exodus to other states because it is too expensive for young people.
Brisbane
Brisbane, one of Australia’s strongest performing capital city markets since the pandemic, would see its mid-point house price climb by another $297,712, translating into a 32.7 per cent increase as the median house price rose to $1.208million, up from an existing record high of $909,988.
Oxford Economics Australia senior economist Maree Kilroy said strong interstate migration into south-east Queensland would boost Brisbane values.
‘Demand fundamentals are expected to remain strong, with Queensland positioned at the front of the pack in terms of population growth,’ she said.
‘The soft near-term supply outlook means pressure on the housing stock is set to endure, creating a strong platform for further growth once the current monetary policy tightening cycle reverses.’
Brisbane, one of Australia’s strongest performing capital city markets since the pandemic, would see its mid-point house price climb by another $297,712, translating into a 32.7 per cent increase as the median house price rose to $1.208million, up from $909,988
The Queensland capital however still has pockets of value, with flood-prone Rocklea just 12km from the city having a median house price of $639,980, compared with the Logan suburb of Beenleigh’s $609,503 and Caboolture’s $660,993, in the Moreton Bay area.
Melbourne
Melbourne, a slower-growing market since the pandemic, would see its median house price rise by 36.7 per cent or $343,451 to $1.278million, up from $935,049.
Investors hoping to buy on their own still have choices at Frankston North, 54km from the city, where the median house price is still $597,429 and Jacana, 25km north of the city where the mid-point is $550,716.
Perth
Perth, Australia’s best performer during the past year, was expected to be Australia’s best performing market during the next three years, with the median house price tipped to climb by 42.7 per cent or $314,124 to $1.049million, up from an existing record high of $735,276.
‘The Perth boom looks firmly entrenched,’ Ms Kilroy said.
‘Risk is firmly to the upside with it noted that the Perth property market has shown a propensity for significant upswings in price cycles that dwarf other markets.’
Bentley, just 10km south of the city, still has a relatively affordable median price of $656,141.
Adelaide
Adelaide’s median house price was tipped to rise by 21.4 per cent to $954,300, up $168,329 from a record high now of $785,971.
But beachside Taperoo has a more affordable mid-point of $672,901.
South Australia’s interstate migration is a lot weaker than the internal inflow into Queensland and Western Australia.
Melbourne, a slower-growing market since the pandemic, would see its median house price rise by 36.7 per cent or $343,451 to $1.278million, up from $935,049
Hobart
Hobart’s median house price was tipped to grow by 23.4 per cent or $162,749 to $855,700, up from $692,951.
Darwin
Darwin’s equivalent mid-point house price was tipped to rise by 21.2 per cent or $122,102 to $695,600, up from $573,498.
Canberra
Canberra, now Australia’s second most expensive capital city market after Sydney and ahead of Melbourne, was expected to slip into fourth place, behind Brisbane.
Oxford Economics is only expecting 21.2 per cent growth during the next three years as the median house price rose by $206,564 to $1.170million, up from $964,136.
But with public servants having higher pay, Canberra is in fact considered a more affordable property market compared with incomes.
Interest rates
While Reserve Bank interest rates are now at a 12-year high of 4.35 per cent, the futures market and the big banks are expecting a series of rate cuts in 2024 and 2025.
The Commonwealth Bank is expecting six rate cuts by June 2025, which would see the cash rate fall back to 2.85 per cent.
Perth, Australia’s best performer during the past year, was expecting to be Australia’s best performing market during the next three years, with the median house price tipped to climb by 42.7 per cent or $314,124 to $1.049million, up from $735,276
A borrower with an average, $598,624 mortgage would see their monthly repayments fall by $570 from $3,780 now to $3,210 as their variable rate fell to 4.99 per cent, down from 6.49 per cent.
The prospect of rate cuts is buoying lending with the value of owner-occupier loans soaring by 9.1 per cent in the year to February while investor mortgages went up by 21.5 per cent, new Australian Bureau of Statistics lending data released on Monday showed.
CommSec economists Craig James and Ryan Felsman said the 13.3 per cent annual surge in overall home lending showed buyers had a fear of missing out.
‘There is a general perception that interest rates have peaked, and this may be seeing greater urgency by home buyers to secure their purchase, fearful of a more significant influx of buyers when interest rates actually start their descent,’ they said.
