Melbourne poised to leapfrog Sydney to lead house price growth

Melbourne has been tipped to lead Australia’s capital cities in house price growth over the next 12 months, with new forecasts showing values will continue to rise despite an expected economic contraction that's likely to keep interest rates on ice for the medium-term.

Bourke Street mall in lockdown, August 2021
Melbourne's famous Bourke Street mall may be currently quiet, but the city's property market is anything but. Photo: Auliviart / (Image source:

Melbourne has been tipped to lead Australia’s capital cities in house price growth over the next 12 months, with new forecasts showing values will continue to rise despite an expected economic contraction that's likely to keep interest rates on ice for the medium-term.

Responses to Finder’s latest RBA Cash Rate Survey indicated the current hot market conditions are likely to continue across Australia, with Melbourne property prices tipped to rise by 9 per cent over the next 12 months.

Sydney was close behind, with its home values forecast to rise by 8 per cent, or $76,619 on average, over the next year.

Perth and Brisbane prices were also predicted to rise by 8 per cent, while those surveyed said they expected home values to rise by 7 per cent in Canberra and Adelaide over the next year.

Hobart and Darwin were predicted to record gains of 6 per cent.

Finder head of consumer research Graham Cooke said lockdowns seemed to have little effect on price growth and home sales.

“The average Sydney home owner earned more than the median family wage over the last 12 months in property equity alone, and it looks like they are set to repeat that over the next 12,” Mr Cooke said.

“In both Sydney and Melbourne, the number of houses sold per month remained relatively flat through 2020 and early 2021, before skyrocketing when lockdowns were lifted.

“In other words, while lockdowns didn’t dampen the housing much, the ending of them lit a fire that is still going.”

The predictions come as competition is heating up among Australian banks on variable rate loans, as the Reserve Bank keeps the official cash rate at its record low of 0.1 per cent.

Research by showed the number of variable rate loans under 2 per cent rose by 68 per cent over the last two months, with 46 options now available to borrowers.

The trend represents a shift in focus for Australian banks, which have been much more active in moving fixed rate loans than variable rates over the pandemic. research director Sally Tindall said Westpac’s move last month to cut its introductory variable rate loan to 1.99 per cent would put pressure on other lenders, even with that rate rising to 2.49 per cent after two years.

“The last thing lenders will want is to start losing customers to Westpac,” Ms Tindall said. 

The latest data from the Australian Bureau of Statistics showed refinancing is continuing to break new ground, hitting another record high in July with $17.22 billion in loans settled in just one month, according to the seasonally-adjusted data. 

“The latest surge in refinancing is putting pressure on the banks to keep their rates competitive,” Ms Tindall said. 

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction. 

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target,” she said.

Meanwhile, the Reserve Bank of Australia has again held steady on the official cash rate, which has remained at its historic low of 0.1 per cent since November last year.

RBA governor Philip Lowe said the “considerable momentum” in the Australian economy had been interrupted by the Delta outbreak.

“GDP is expected to decline materially in the September quarter and the unemployment rate will move higher over coming months,” Dr Lowe said.

“While the outbreak is affecting most parts of the economy, the impact is uneven, with some areas facing very difficult conditions while others are continuing to grow strongly.”

Dr Lowe said while the impacts of Delta would likely be temporary, the RBA maintained that it would not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

He said it was not likely that inflation would reach that level before 2024.

“Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently,” Dr Lowe said.

AMP Capital chief economist Shane Oliver agreed that the economic impacts of lockdowns in Sydney and Melbourne would further delay the time when the RBA’s stated rate hike conditions would be met.

And Real Estate Institute of NSW chief executive Tim McKibbin said it was wholly appropriate that rates remained on hold for the foreseeable future, with fears of a recession mounting even as recent GDP data showed a surprising expansion in the three months to June.

“Low rates and affordable finance have been one of various demand drivers for residential property and it’s well-recognised how important a healthy property market is to the economy,” Mr McKibbin said.

“There’s no industry that will be more relied upon for the heavy lifting when it comes to the budget repair work that will need to be done for many years ahead.

“Of course, there is no need in the market to encourage more demand. Unless we unlock more supply, the economic engine that is the housing market will start running out of steam.”

While the RBA and a range of experts aren’t expecting any increase any time soon, new research from Finder showed 53 per cent of homeowners were concerned about a rate rise in the near future.

The survey showed 15 per cent feared they would not be able to make their repayments if rates increased.

Finder’s Mr Cooke said some homeowners may have purchased beyond their means in the current boom.

“The past 12 months hve seen property prices explode as record numbers of Australianas have fled into the housing market,” Mr Cooke said.

“Low interest rates have encouraged many buyers to purchase earlier than they otherwise might have for fear of missing out.

“But not all of them will have budgeted for their monthly repayments to go up if or before the cash rate increases.”

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