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Melbourne’s house prices are predicted to soar to a record high by next month and then reach a $1 million median as early as mid-next year, new forecasts reveal.

The news is a mixed blessing for home owners, who have seen the value of their properties rise but face the prospect of higher costs when trying to upgrade.

And it adds another hurdle in the path of those looking to get into the market for the first time.

The bullish predictions are part of Domain’s Property Price Forecasts – February 2020 released today

Domain economist Trent Wiltshire said buyer momentum, which built towards the end of last year as Melbourne recovered from its biggest property price downturn since the 1980, would continue in the first half of the year before prices moderated.

“It looks like Melbourne’s going to surpass the peak prices in both houses and units this year,” Mr Wiltshire said.

The record $909,000 median house price set in the December quarter of 2017 will be surpassed by the end of March, Mr Wiltshire predicts.

House prices are forecast to soar by 8 per cent by the end of 2020, reaching a median of $970,000 by December. They will bounce by a further 3 to 5 per cent in 2021 to reach the golden $1 million mark by as early as mid-year, Mr Wiltshire said.

Unit prices are also predicted to rise by 5 per cent in 2020, pushing well beyond the record $549,701 set at the end of last year. Forecasts show unit prices are set to rise by a further 2 to 4 per cent in 2021.

The positive price forecasts follow a dismal performance in Melbourne’s property market in 2018 and the first half of 2019. House prices plummeted by 10.7 per cent over that time, stripping $94,391 off the median from peak to trough.

Prices bottomed out at $809,468 in March last year but rebounded quickly in the next two quarters.

As of the December quarter last year, Melbourne’s median house price now sits at $901,951.

Prices were affected by tighter lending criteria from the banks in the wake of the financial services royal commission and uncertainty over housing policy in the lead-up to last year’s federal election.

But a turnaround of fortunes for property buyers saw them return to the market. The election result in May ensured tax breaks for property investors would continue, banks loosened lending criteria and interest rates were cut in quick succession.

It saw one of the fastest recoveries in Melbourne ever. The recovery was so rapid and unexpected, some bank economists have had to revise their predictions for 2020.

Westpac upgraded its forecasts late last year and now expects Melbourne’s median dwelling prices to rise by 6 per cent in 2020. Prices would moderate due to affordability issues, Westpac economists predicted.

ANZ likewise upwardly revised its predictions from a 6 per cent rise in Melbourne’s house prices to 11 per cent in the 2020 calendar year.

NAB have reaffirmed their latest prediction for Melbourne of a rise of 7.4 per cent for house prices, and the same for unit prices over 2020.

ANZ economist Adelaide Timbrell said the strong activity from mid-2019 would make Melbourne the “real performer” over 2020.

“Everyone was underestimating what happened,” Ms Timbrell said.

She agreed units would not rise by as much as houses over the next 12 months.

“When the market fluctuates, house prices tend to fluctuate more than units and so that’s why we’re seeing the big resurgence in price,” she said.

AMP Capital’s chief economist Shane Oliver predicted Melbourne’s house prices would gain 10 per cent over the next year.

“The way things are going they’ll probably go higher than the last record by [the end of] February,” Dr Oliver said.

“There’s a bunch of drivers for this with low interest rates and population growth continuing,” he said.

Though new listings were coming onto the market, it wasn’t enough to keep up with the current demand.

With new building approvals also falling, Melbourne was heading towards an undersupply of properties for sale and rent.

“There are some drags on the market – the economy is soft and unemployment might go up and that might keep buyers cautious,” Dr Oliver said.

Banking regulator APRA may look to add tighter controls to lending as prices rise and become more unaffordable for the average buyer.

“As we head higher it does make it harder and harder for new entrants,” Dr Oliver said. “It’s been a problem for the past 15 years and it’s not going away.”


 FEB 12, 2020

Source: Domain