ANZ's latest research show that Melbourne property prices will continue to rise in 2018.
This judgement is mainly based on the model put forward by ANZ economists David Plank and Jack Chambers. This model aims to reflect the long-term trend in Melbourne property prices.
Plank and Chambers indicates that, auction clearance rate and credit growth are very useful first indicators. However this method is more suitable for short-term predictions 3-4 months into the property market.
However from the model they proposed, we can see that the price increase will be as low as 1% in the second quarter of 2018, and around 2% annual growth rate. However, this slowdown is also unlikely to continue as the model predicts that the annual growth rate of 2019 will rise back to around 4%.
Although this prediction is more positive than the 0-3% decline predicted by UBS in December, but the entire market believes that it is unlikely to have a two-digit number growth within the upcoming two years.
Currently, Melbourne Property Prices forecasts have already become a popular topic, where recent statistics show that there is a significant price decrease in Melbourne’s major property market such as Melbourne apartments.
Plank and Chambers indicates that from the long-term perspective, the population growth will support property prices in Australia, regardless of changes in the economic cycle.
ABS statistics show that in the past three years, Australia's rapid population growth is driven mainly by overseas immigrants. In 2017, a large number of interstate immigrants moved into Victoria, which also explains the dramatic increase in the number of Melbourne apartment constructions announced on Tuesday.
Last Month, the Chief Economist Paul Dales mentioned that the Australian property market should not rely on population growth to raise property prices. However, Plank and Chambers believe that increasing population growth is the most statistically significant variable in determining basic values.
There are three key factors to examine the short-term trend of property prices.
Error Correction: The difference between the actual housing price and the estimated base value - as the price will return to its basic value over time.
Property price growth: the current trend of property prices.
Changes in housing investment, total income and average loan rate: the impact of economic conditions, such as demand and supply.
We can go back to the historical model of 1995- these factors have a strong correlation with the actual growth rate of house prices in Australia.
Therefore, Plank and Chambers also inserted short-term variables into their model. They believe that within the short term perspective, the main obstacle for rising house prices is the high mortgage rate.
At the same time, considering that many projects in 2017 will be completed soon, this means there will be a large number of new housing listings in the first half of this year, pressuring the housing price growth.
Although income growth is unlikely to have a significant impact on property prices, but the two economists believe that the next wage price index released on February 21 will show a positive growth in Australian wages.
However if this did not happen and wages did not show the expected growth, this will mean that the Australian Reserve Bank is likely to delay the rate hike time. If this happens, it will be very beneficial for the Melbourne property market.
Overall, the two economists believe that although the national housing price growth will slow down in 2018, but the price will not drop.
So, what can we do about the price rise?
Invest in the property market!
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