Property Prices Set to Fall: Will Your City Be on Sale?

There might be some light at the end of the tunnel for first homebuyers, with new analysis showing house prices are forecast to fall after the first official interest rate rise, expected to be late next year.

The research, carried out by construction industry forecaster BIS Shrapnel, points to an oversupply of apartments and new housing driving prices back.

BIS Shrapnel senior manager and author of the report, Angie Zigomanis, says it all boils down to good old supply and demand.

“The rise in construction activity, in both houses and apartments, will outweigh supply over the next three years,” Zigomanis explains.

“This imbalance is more pronounced in apartment sector, where strong demand from investors is keeping things going for now, but these apartments will need tenants.”

And while new apartments will likely hold their own, attracting tenants with the latest mod cons, older apartments will have to compete against new and that’s usually on price, according to Zigomanis.

The report highlights Perth and Canberra property markets as particularly soft spots over the next three years, with house prices in these two big country towns expected to fall by 3 per cent and 2 per cent respectively over the next three years.

Looking across the rest of the country, it’s looking like a pretty weak three years for everywhere but Brisbane, where prices are expected to rise by 13 per cent between now and June 2018.

Sydney is forecast to inch up by just 2 per cent, Darwin by 3 per cent, and Melbourne and Hobart by 4 per cent.

In real terms – when inflation is adjusted for – Sydney house prices will actually fall by 6 per cent over the next three years. Melbourne and Hobart will fall by 4 per cent, Canberra by 5 per cent, Adelaide by 7 per cent, and Perth and Darwin by 10 per cent.


Check out your city's price forecast in this handy interactive chart.

Still, the slowdown in price growth doesn't mean there will be a bargain bin of property across the country, with the average house price in Sydney still expected to be $980,000 in three years' time.

If you want a deal, you'll need to head to the Apple Isle, where the average house is expected to set you back $380,000 in June 2018. Today, that same house is going for around $365,000.

Apartments are another story though, with prices in all capital city markets, with the exception of Brisbane, expected to fall over the next three years. Melbourne and Canberra are set to wear the most damage, with a 4 per cent fall in nominal unit prices over the period.

Again, Brisbane looks the best place to be with a 6 per cent increase in apartment prices expected and an average price of $435,000 if you were to buy today.

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As with any forecast, BIS Shrapnel have made a few assumptions in order to arrive at these conclusions. 

The report assumed that low interest rates will encourage non-resource sectors to increase their investment over the next year, unemployment will remain in the 5 per cent to 6 per cent range, and wages will increase.

This will offset falls in mining investment and flow through to stronger economic growth, drive inflation to the top of the RBA's 2 per cent to 3 per cent target range and lead them to increase interest rates in late 2016 or early 2017 to keep prices in check.