Australia’s 5 biggest cities on course for double-digit house price growth

Australia’s 5 biggest cities on course for double-digit house price growth

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Sydney homeowners could earn more than double the average annual wage by the end of the year if economists’ house price predictions come true.

Corelogic’s latest home value index showed Australia’s property boom continues to roll-on while housing values lifting another 2.2% in May alone.

Home values grew stronger in May than they did in April (1.8%) but weaker than the 32 year high recorded in March when values surged 2.8% with capital cities once again outpacing regional Australia.

In this month’s Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy, and the experts believe further price hikes are still to come – Sydney and Perth are expected to see the biggest gains, with economists foreseeing an 8% increase in property values over the next seven months.

Applying this forecast to current year-to-date price hikes means Sydney prices would increase by an unprecedented 21% in 2021 alone.

This would add $216,300 in value to the average Sydney property.

Graham Cooke, head of consumer research at Finder, said that the Sydney property market is continuing to reach unprecedented levels.

“The current average salary is around $92,034, so if our experts’ predictions are correct, the average Sydney homeowner will earn more than double the annual wage this year – equivalent to a fifth of the average property value through 2021.

“To put that into perspective, prices rose by just 4% in 2020 and 2019, and dropped by 8% in 2018.

“A 21% increase would be the highest annual increase for the Sydney property market in recent history, beating the previous record of a 15% rise in 2013,” Cooke said.

2021 price change predictions by state

Price change
Jun-Dec 2021
Total 2021
price change,
current* & future
house price,
Dec 2020**
Total 2021
average price
average price
by December
Melbourne 7%15%$806,000+$120,900$926,900
Brisbane 7%17%$581,000+$98,770$679,770

Source: Finder RBA Cash Rate Survey of 17 – 22 respondents, June 2021                       
*Based on CoreLogic’s current gain to May 2021, plus future gain predicted by economists.
**3-month rolling average house price, CoreLogic.

Experts also predicted a June-December gain of 7% in Canberra, 7% in Hobart, and 6% in Darwin.

Full-year forecasts for these cities were not available due to a lack of existing data.

Single parent deposit scheme deemed “too risky” by experts

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The government recently introduced a new Family Home Guarantee, whereby single parents can buy a home with as little as a 2% deposit.

More than two-thirds of experts (19, 68%) agree that the scheme is too risky, and may put vulnerable borrowers at risk.

Saul Eslake of the Corinna Economic Advisory compares this level of lending to the years leading up to the Global Financial Crisis (GFC).

“You’d think we might have learned something from the US experience in the years before the GFC.

“There are dangers inherent to both individual borrowers and the financial system and broader economy, of encouraging people into homeownership with wafer-thin equity,” Eslake said.

Cooke also agrees that the lending scheme is risky.

“Encouraging homeowners to get into the property market with only a 2% deposit reminds me of the 100% loans being offered in Ireland in the months before the GFC.

“With such a small slice of equity in your home, any potential buyers would be very susceptible to falling into negative equity if prices did fall,” Cooke said.

76% expect the cash rate to hold until at least Q4 2022

All 40 participants that took part in Finder’s RBA Cash Rate survey agreed that the cash rate will see no movement this month. Interest Only Lending Australia

There are no expectations from the experts that the cash rate will decrease any time in the next two years, however, a small number of respondents (9%, 4) believe the cash rate could increase before the end of 2021.

Most experts expect the cash rate to increase in 2023 or later (61%, 25) with a 15% (6) expecting the increase to take place in Q4 2022.

Cooke said that mortgage holders should remain vigilant, despite stagnant rates.

“Rates may be set to sit still, but that doesn’t mean your actual home loan won’t become more expensive.

“We’ve already seen Westpac, CBA and UBank raise rates independent of the cash rate in recent times.

“Now would be a great time to find out what rate you’re actually paying. If it’s over 2%, you might be able to save significantly by refinancing to a better deal,” Cooke said.

Housing affordability sentiment hits all-time low

Finder’s Economic Sentiment Tracker gauges experts’ confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.

Positive sentiment around housing affordability (0%) reached the lowest level ever recorded since the Finder survey began in 2018.

On the other hand, positive sentiment around employment is at 72%, which is the second-highest it has ever been.

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