Sydney, Melbourne home prices tipped to fall around 5 percent in 2018

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Property Mortgages
Luxury houses and apartments with multi-million dollar price tags tower over Sydney Harbour September 19, 2003. Reuters/Will Burgess

About half of Australia's capital cities recorded dropping house prices by the end of 2017. The declines will continue in 2018, a research house predicts.

CoreLogic is predicting the declines of around 7 percent for both Sydney and Melbourne. National property markets finished the past year with a whimper, and the trend was expected to continue over 2018, which was “likely to be significantly different” to the cycle of the previous years, according to CoreLogic head of research Tim Lawless.

In December, home prices in Sydney dropped by nearly 0.9 percent, making it the joint-weakest capital along with Darwin. Sydney prices dropped 2.1 percent over the quarter. Its property prices reached 2.2 percent below the market’s peak in August 2017.

Lawless noted that the result is a bleak contrast to price growth of over 17 percent in mid-2017. Currently, the median house price in the harbour city is $1,058,306, with a median apartment value of $774,124.

The most significant drag on the headline growth figures, Lawless said, was Sydney’s housing market. Capital cities were down 0.4 percent on average over the month.

As for Melbourne, it recorded monthly declines, down 0.2 percent. Its median house price is $832,735 and a median apartment price of $574,052.

Lawless shared what he thinks of the future, citing possible lower to negative growth rates across previously strong markets. It may also be the year for more cautious buyers and ongoing regulator vigilance of credit standards as well as investor activity. “We’re likely to see lower to negative growth rates across previously strong markets, more cautious buyers, and ongoing regulator vigilance of credit standards and investor activity,” the Sydney Morning Herald reports Lawless as saying.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, said that weak auction clearance rates point to more price drops. He also believes that the weakness in the last month of 2017 will likely extend in the year ahead with Melbourne prices also beginning to drop. It coincides with dropping auction clearance rates like those recorded in Sydney.

“The Melbourne property market appears to be following Sydney down although stronger population growth is providing some support,” he told Business Insider Australia. Sydney and Melbourne's prices are expected to drop by around 5 percent or so in 2018. For first home buyers, Oliver said low-interest rates and support will provide “some support and should help ensure only moderate price falls.”

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