The four reasons why housing will boom again in 2017 in Melbourne and Sydney: SQM

The four reasons why housing will boom again in 2017 in Melbourne and Sydney: SQM
The four reasons why housing will boom again in 2017 in Melbourne and Sydney: SQM

The current housing boom won't come unstuck until 2018, according to SQM Research founder Louis Christopher.

He was described by the Australian Financial Review as "arguably the country's most accurate forecaster."

"It is now very likely it will be a strong start to the new year for Sydney and Melbourne, given the way 2016 ended," Mr Christopher said.

He listed four reasons for the likely coninued growth as the continued low interest rate environment, strong Sydney and Melbourne economies, continued strong population growth and the supply side of the housing market.

The SQM forecaster expects capital city house prices to rise between six and 10 per cent this year, led by double-digit price growth in Sydney, Melbourne and possibly Hobart.

There will be single-digit growth in the other capital cities, apart from Perth and Darwin where he anticipates continued further falls.

Christopher believes both Sydney and Melbourne's housing markets will be "dangerously overheated and overvalued" by 2018.

"The market will sustain its current momentum and rise again in 2017 – 2018 may be well another matter."

Over the past two years, his predictions on capital city house price growth have been roughly in line with the Australian Bureau of Statistics's Residential Property Price Index.

Mr Christopher believes a number of key macro factors will continue to push up prices this year.

These, he said, include the current low interest rate environment, continued strong population growth especially in Sydney and Melbourne and – until very recently – a weak response to the supply side of the housing market.

"We're getting around 90,000 new people coming to both Sydney and Melbourne every year.

"The Sydney and Melbourne economies have kept the country out of recession and there's a strong correlation between a city's economy and their housing market," Mr Christopher said.

His forecasts for 2017 are under a base case scenario of a steady economy, no changes to the cash rate, the Australian dollar hovering between 70¢ and 80¢ and no meddling in bank lending by the Australian Prudential Authority in the first six months of the year.

Christopher says if the Reserve Bank cuts the cash rate this year, then house price growth could be even greater. 

SQM Research's Housing Boom and Bust Report, released in October 2015, forecast Australian dwelling prices to rise at between 3 and 8 per cent in 2016.

SQM forecast Sydney dwelling prices to rise by 4 to 9 per cent during 2016.

In Melbourne SQM's prediction of price growth was of 8 to 13 per cent.

Christopher acknowledges it was overly bullish on Brisbane, predicting growth of 5 to 8 per cent and was a bit too bearish on Canberra (2 to 4 per cent) but was quite accurate on its outlooks for Hobart (4 to 7 per cent) and Adelaide (2 to 5 per cent)

"It seems we did get most cities right and made the right call that Melbourne would be the out performer," Mr Christopher told the Australian Financial Review. "We copped a fair bit of stick over that one, particularly from the Macrobusiness guys who thought Melbourne would fall."

Sqm Research Housing Boom

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