How did the experts’ predictions turn out?
As the end of the 2015 year approaches, we take the opportunity to have a look back on how the so-called property experts’ predictions turned out. This year we’ve had Sydney’s boom, Melbourne’s mini-boom and some lending restrictions, care of APRA, that have had the desired effect of slowing investor spending. So how did the experts’ predictions stack up?
Sydney’s forecast from BIS Shrapnel was 9 per cent growth over the coming three years. They clearly got it wrong by a factor of nearly double! The city’s median property price increased an impressive 16.7 per cent in the 12 months to September 2015, according to RP Data/CoreLogic, to reach a value of $935,800 or over $1.0M in the case of APM Domain.
BIS Shrapnel is now predicting a potential correction in Sydney property prices, which it foresees happening in 2017, following a possible increase in interest rates next year. But how much should we put our faith in that prediction, given their track record?
Over 2015/2016 house prices they expect prices to continue to increase by around 7 per cent, before the combination of rising rates and increasing apartment supply “discourages both owner-occupiers and investors, particularly as pent up demand pressures are beginning to ease”, says BIS Shrapnel.
We do not foresee a property price crash in Sydney, but neither do we believe that growth will continue at the pace it’s been keeping the last couple of years.
The Victorian capital was forecast to see minimal growth of 5 per cent between 2015 and 2017, an expectation that was once again exceeded in just 12 months.
The median property price in Melbourne surged by 14.2 per cent in the 12 months to September 2015, almost tripling BIS Shrapnel’s expectation!
But going forward, much like in Sydney, these so-called experts are predicting a slowdown in Melbourne’s pace of growth.
John McGrath, CEO of McGrath Estate Agents, predicts growth of 3 to 5 per cent in Melbourne over the next year, before the market will plateau. BIS Shrapnel’s view is similar, if a little less positive, with predictions that Melbourne’s property market will increase by 5 per cent next year, before contracting by 4 per cent in 2017/2018.
The biggest let-down has been Brisbane. It was expected to be the next property hot spot, but Brisbane’s growth has failed to perform at the level that experts were predicting 12 months ago.
Headlines at the time were “Brisbane to outshine with 17 per cent growth over the next 3 years”. It may still, but so far, capital growth has been moderate, with the city recording growth of 4.8 per cent in the 12 months to September (Source: RP Data/CoreLogic). This we believe was largely influenced by Queensland’s economy, which is sensitive to the mining downturn.
Of course, it’s important to remember that any city isn’t just ‘one market’. Within Brisbane, certain pockets have experienced strong growth over the last 12 months: like Chermside, where median property values have increased by 9.2 per cent (Source: propertyvalue.com.au), or Kedron, where apartment values are up 15 per cent.
NAB chief economist Alan Oster is forecasting that Brisbane will continue to grow next year at a similar pace to 2015, with median values to increase by 5 per cent. Across the board this may be the case, but you’d have to think there will be certain suburbs within Brisbane that achieve double-digit growth in the 12 months ahead.
The good news for investors
In analysing the last 12 months and projections for the year or two ahead, one thing has become very clear. Predictions are just that and even the experts get it wrong! We have a saying at Propertunity Buyers Agents: “Be your own guru”. Seasoned investors have learned to “tune out” the media noise and to cut through obstacles & thereby keeping a clear path towards their property investment goals.
Despite the fact that we have access to huge amounts of data, statistics and modelling to help us make informed investing decisions, but we won’t ever be able to predict future market movements with 100 per cent accuracy.
The one overwhelming piece of good news for investors is the broadly accepted prediction that interest rates are set to remain low for the foreseeable future.
HSBC chief economist Paul Bloxham is one of many economists who are predicting mortgage interest rates to remain at their current record-low of around 5 per cent for at least the next 12 months, despite the recent out-of-cycle increase from the major banks – which was more to do with APRA requirements for the banks to hold larger reserves of cash, than anything else.
“If interest rates start to rise,” he says, “we think that would have a dampening effect on house price growth, but we don’t think the RBA will move rates upwards until 2017 and maybe beyond that. We’re in for a long period of stable interest rates.” This is one prediction we do tend to agree with. Let’s meet back here in 12 months and see how things turned out.