What the markets will do over 2013/2014

National house prices will rise at a rate of 7% to 11% annualised between the second and third quarters of next year, driven by “massive real estate price rises” within the Sydney property market, according to the latest report by property advisory and research house SQM Research.

SQM founder Louis Christopher stated in the report that the Sydney housing market will record significant rises of 15% - 20% for next year, while most cities will record moderate rates of capital growth.

Christopher forecasts Melbourne to record a growth rate of 5%-8%, Perth at 4%-8%, Brisbane at 4%–7%, Darwin at 3%–6%, Hobart at 3%–6% and Adelaide at 3%–5%.

Canberra has been forecasted to record a fall in real estate values because of public services cuts and the tail end of the 2010 construction boom. The decline is expected to be between -1% to -4%.

Other areas of interest include the Gold Coast as well as mining and resources towns. Christopher expects the Gold Coast housing market to record “modest gains” next year, in view of falling prices in Surfers Paradise itself and modest rises in the West and Southern ends of the city.

A number of mining and resources towns have seen large price falls in 2013, as a result of cancelled and completed projects. Christopher is of the view that there is still a risk for a large scale commodities price crash. Conversely, he also considers that the downturn may not be too severe as the same commodities prices have stabilised recently.

Christopher added that if sustained accelerated dwelling price growth occurs next year, the Reserve Bank of Australia may be required to increase interest rates.

However, Christopher added that the RBA’s decision to lift interest rates will be a difficult one. He noted that the RBA might not lift rates if only a few cities experience growth beyond 7%, unemployment was still on the rise, and if consumer and business confidence was still not doing well.

Current interest rate settings are considered accommodative by the RBA. From previous statements, Christopher notes that when confidence picks up even moderately, the RBA will take action to move interest rates towards “normal”.