Andrew Wilson's five property predictions for 2014

In 2013 the property market had a bumper season. House prices in major cities rose substantially, investors bolstered the Sydney market to new heights and clearance rates in Melbourne and Sydney returned to three-year highs.

The median house price in Sydney rose by 15.1% to $793,000 and in Melbourne the median price jumped 8.6% to $569,000, according to Australian Property Monitors (APM).

With house prices through the roof and predictions first home buyers are being locked out of the market by the skyrocketing values, 2014 is set to be an interesting year in property.

APM chief economist Andrew Wilson gave us his five predictions for 2014.

Sydney and Melbourne were the hot markets in 2013, but this is set to change in 2014.

Wilson says house price growth peaked in Melbourne and Sydney in the December quarter last year.

“Sydney reached record-level price growth rates, the best in 10 years, and was overall very high by historical standards, but economic headwinds are blowing against medium-term growth in house prices now,” he says.

“The lower dollar will impact inflation, wage growth has slowed and this will impact living standards.”

Wilson says the level of growth reached in 2013 will be difficult to sustain.

“Markets will start well, there is still a lot of energy in the market, but this will moderate and we’re looking at likely growth rates of about half of what was achieved in 2013 in Melbourne and Sydney,” he says.

“There is more pessimism than optimism about the New South Wales and Victorian economies. The Sydney market will also have issues to do with affordability because of low income growth.”

While Melbourne and Sydney slow, Brisbane is tipped to bang.

“The Brisbane market is still in catch-up mode, but the Queensland economy is ramping up with regional centres recording growth. There will be an increase in job seekers in Queensland too, as they shift from Melbourne and Sydney where the jobless rate is higher,” Wilson says.

“Investors will be more interested in Brisbane real estate because of its potential for high yields and prospects of high capital growth.”

Wilson says the Adelaide market is resilient, despite there being issues with its local economy.

“It doesn’t have that volatility in the housing market, so modest growth of about 3% is expected. Canberra is a similar story with jobs being shed in the public service, so house price growth of around 3% to 5% is expected in 2014.

Hobart is starting to show some improvement in its property sector, so modest house price growth can be expected.

Wilson says Perth is tipped to perform well, continuing its strong run in the property sector with growth between 6% and 8% for 2014 predicted.

The cause and effect between clearance rates and house price growth was observed in 2013, with strong clearance rates reflecting higher prices.

Wilson says one of the early signals of the market starting to moderate will be clearance rates falling back from high percentages in Melbourne and Sydney.

“I expect to see that as a forward indicator of moderating buyer activity. This will be apparent in the June quarter, rather than March and it will be interesting to see if they can be maintained in Sydney,” he says.

“Clearance rates started to fall away in November-December last year, but there was a lot of stock going into the market. With record levels of properties auctioned, this could have easily caused clearance rates to fall slightly, so we’ll see how it pans out over March.”

Sydney’s prestige market had lagged behind the rest in 2013, but it’s expected to pick up pace in 2014.

“It started to pick up toward the end of the year and it will take advantage of that increased confidence,” Wilson says.

“Sydney’s northern shore and eastern suburbs will do well. Growth levels were modest in 2013 and there is room to grow there. If we see strong results from the sharemarket, the prestige market will keep bubbling along.”

In Melbourne, the expensive areas of the eastern suburbs were the best performers of 2013.

“The eastern suburbs have been the star performers of 2013, but there are questions as to whether they’ve reached affordability barriers,” he says.

“They still have some upsides like Sydney’s premium markets, but generally there will be a moderation of price growth. Declining numbers of first home buyers is also likely to impact the outer eastern suburbs.”

Each city has its own property market characteristics and in 2013 investors dominated the Sydney market, while owner-occupiers were more prevalent in Melbourne.

“In NSW there were record numbers of investors recorded by the Australian Bureau of Statistics,” Wilson says.

“But we have to be mindful of overshooting the rental market in Sydney and I question if there’s enough demand. We’re already seeing rents flat lining and vacancy rates start to rise.”

Wilson says this will put pressure on investors looking for cash flow.

“The only hook will be prices growth, but I think investors will start to look at Brisbane instead, and possibly Adelaide to a lesser extent.”

This article first appeared on SmartCompany.