It could cost you an extra $110,000 to $160,000 to buy a house in Sydney or Melbourne by the end of next year, with prices in capital cities tipped to increase 14.4 per cent over the next 24 months.
Those are the latest predictions from economists at Commonwealth Bank, who believe Australia’s latest housing boom will deliver massive price increases across every capital city by 2022.
CBA says national house prices could rise 8 per cent in 2021 and a further 6 per cent in 2022, while unit prices are tipped to soar 9 per cent.
The reasons why are “simple,” according to the bank.
“The boom is being driven by record-low mortgage rates coupled with a V-shaped recovery in the labour market,” CBA economists said in a research note.
In other words: Debt is cheap and that’s pushing a lot of people to buy houses.
So, how far will it go?
The bank says Sydney property prices could rise 13.7 per cent by 2022, while Melbourne is looking at a 12.4 per cent bump.
That translates to a $160,000 rise in median prices in Sydney and a $110,000 increase in Melbourne, based on Domain estimates.
Darwin is tipped to book the largest two-year price increase at 18.7 per cent, followed by Perth (17.7 per cent), Brisbane (16.6 per cent), Canberra (15.5 per cent), Hobart (15.5 per cent), and Adelaide (15 per cent).
The figures assume that the RBA cash rate will remain at a record-low 0.1 per cent until 2024, a likelihood endorsed by the Reserve Bank last month.
But savers who are still a few years away from putting down a deposit shouldn’t worry too much, according to My Housing Market chief economist Andrew Wilson.
A former chief economist at property site Domain, Dr Wilson said we’re living through the “last gasp” in the rollercoaster ride of housing prices and capital city prices were still playing catch up after falling from their historic peaks three to four years ago.
According to Domain, median house prices in Sydney rose to $1.2 million over the December quarter, eclipsing a 2017 record, while median prices across Melbourne eclipsed their 2017 peak just before the pandemic and broke records again in the December quarter when they hit $936,000.
“We’re having a positive year because we’ve released constraints that have been on the market over the last three to four years,” Dr Wilson told The New Daily.
“Once the catchup has been fully absorbed, the future is quite flat.”
Dr Wilson said annual price growth would likely fall to 3 or 4 per cent after 2021, particularly because interest rates aren’t expected to fall further and wages growth is almost non-existent.
In other words, he believes the housing boom has been a bit over-egged in recent weeks, spurred on by income gains from the more than $251 billion in government stimulus spent last year.
Associate Professor Sam Tsiaplias, a housing market expert and principal research fellow at University of Melbourne, said rapid price rises over the past month were also being driven by pent-up demand.
Dwelling prices across Australia’s five largest capital cities increased 0.8 per cent over the first two weeks of February, according to CoreLogic, which equates to a whopping 19.2 per cent on an annualised basis.
“Demand that would have naturally occurred last year has moved to the first half of this year, [and] we’ve also got record-low interest rates,” Professor Tsiaplias told The New Daily.
“It’s not sustainable for a long period of time, [though] I can see these being relevant factors for one or two years.”
Professor Tsiaplias agreed that price increases would likely normalise over the next three to five years, unless the economy suffered another major shock like a pandemic.
But in the meantime more and more people will be priced out of the market.
“We’re likely to see an increasing proportion of renters,” Professor Tsiaplias said.
How far will house prices rise in your city?
The breakdown below is based on Commonwealth Bank research.
Prices in Sydney are expected to rise 7.5 per cent in 2021 and a further 5.8 per cent in 2022, according to Commonwealth Bank.
With median prices today hovering around $1.2 million, according to Domain, this means it could cost you an extra $160,000 to buy a house in Sydney by the end of next year.
Dr Wilson said rising numbers of returning expats would support price growth in Australia’s largest city over the next few years.
Prices in Melbourne are tipped to soar 7 per cent in 2021 and 5 per cent in 2022.
With median prices currently around $936,000, that means it could cost you upwards of $116,000 more for a house in 2022.
As with Sydney, Dr Wilson predicts prices will be supported by returning expats and migrants once borders reopen.
Prices could rise 9.5 per cent in Brisbane over 2021 and a further 6.5 per cent in 2022, according to CBA.
That means it could cost about $102,000 extra for a house in 2022, though prices will fluctuate by suburb and area.
Dr Wilson believes a “safe haven” effect explains why prices this year are expected to rise faster in Brisbane than in Sydney and Melbourne.
In other words, people are looking to escape large cities during the pandemic.
Price are tipped to rise 9 per cent in Adelaide over 2021 and a further 5.5 per cent in 2022.
That translates to about $86,000 added to the city’s median house price by 2022.
Prices will increase 10 per cent in Perth this year and 7 per cent next year, according to CBA.
Weaving in values from Domain, that translates to an extra $99,000 onto median dwelling prices within two years.
Dr Wilson said Perth is particularly hot this year, benefitting from the same “safe haven” trend as Brisbane and a post-mining boom recovery.
Prices are tipped to rise 9 per cent in Canberra over 2021 and a further 6 per cent in 2022, according to CBA.
That means median prices could rise about $132,000 in just two years.
A 9 per cent increase in prices is expected in Hobart in 2021, which could be compounded by a 6 per cent increase in 2022.
Those increases mean median prices could increase by about $87,000.
But this is likely to vary significantly by suburb.
Prices could increase 12 per cent in Darwin in 2021 and a further 6 per cent in 2022.
That would drive a $99,000 increase in median prices, according to Domain.
What about regional areas?
Commonwealth Bank hasn’t published non-capital city estimates, but prices have been surging across many regional and suburban areas as remote workers abandon their city-based offices.
Professor Tsiaplias nonetheless expects prices to rise at a slower pace in the regions than in the capital cities.
“Research suggests capital cities like Melbourne and Sydney are most sensitive to interest rate changes,” he said.