Sydney and Melbourne property prices led house prices higher yet again in June, rising 2.8% and 2.9% respectively.
According to CoreLogic RP Data, Sydney's median house price is now $900,000 while units go for $650,000. That's even higher than Melbourne's median house price of $615,000. Sydney and Melbourne have now posted gains of 16.2% and 10.2% respectively since last year.
The mining states of Western Australia and Northern Territory are going backwards though, losing 0.4% in Perth and 3.9% in Darwin in June, with both cities seeing negative growth over the past year. Other cities and regions have posted low single-digit growth over the past year, as you can see from the graphic below.
CoreLogic RP Data senior research analyst Cameron Kusher expects Darwin and Perth to experience ongoing weakness over the next 12 months, if not longer. That is primarily due to the huge slide in mining investment in those states.
CoreLogic RP Data's head of research Tim Lawless added that interest rate cuts in February and May had contributed to growth. The RBA dropped the official cash rate by 0.25% in each month, lowering the rate to 2.0%. Interest rates on mortgages are available at under 5% from most lenders, making it more attractive for investors to borrow and existing homeowners to refinance and move up the property ladder.
But property investors should heed a new report from forecaster BIS Shrapnel. While the company says doomsday warnings of a housing crash are premature, property prices are expected to begin falling from as early as next year. BIS Shrapnel senior manager Angie Zigomanis only expects the RBA to raise the cash rate by 0.5%, but that will be enough to kill the surge in property prices.
That is expected to coincide with interest rates moving higher, a big increase in supply and weaker investment returns. BIS Shrapnel is forecasting that Sydney and Melbourne are only likely to see median prices rise by 2% and 4% respectively over the next 3 years.
AMP chief economist Shane Oliver agrees and has told the Australian Financial Review,
"The real risk for property is in 2017 when the Reserve Bank starts raising rates and then you will see prices come off 5 to 10%, particularly in Sydney".
Mr Zigomanis also noted that many capital cities are building apartments at record rates, driven by investor demand. Brisbane is the only capital city expected to see growth over the next few years, with growth languishing below that of its southern sisters Sydney and Melbourne.
That's probably no surprise. The median house price in Brisbane-Gold Coast region is $500,000, only higher than Adelaide and Hobart, and well below that of Sydney's $900,000. The Gold Coast is hosting the Commonwealth Games in 2018, which could spur further demand for property.
Foolish takeaway
The key thing to remember with property is that it moves in cycles, like other asset classes. Don't put all your eggs in one basket, and don't take on too much debt, like this poor unfortunate investor has.
