Sydney will lead a jump in Australian home prices, which will soar as much as 20 percent in 2014, as demand driven by record-low interest rates meets a lack of supply, according to SQM Research Pty.
Prices across Australia’s major cities could rise as much as 11 percent on average in 2014 in SQM’s base-case scenario, which assumes no more than one 25 basis-point interest-rate cut by the central bank, the Sydney-based property researcher said in its Housing Boom and Bust Report. All of Australia’s major cities will see increases, except Canberra, which is expected to record declines of as much as 4 percent, it said.
“The Reserve Bank of Australia will be placed in a difficult position with regard to interest rate settings sometime between the second and third quarters of 2014,” Louis Christopher, managing director at SQM, said in the report. “Would they lift rates if it was just a few cities experiencing growth beyond 7 percent? Would they lift rates if unemployment was still rising?”
The RBA, which has lowered borrowing costs by 2.25 percentage points since late 2011 to 2.5 percent, today said it retains the option of reducing interest rates, while adding the effect of earlier cuts hasn’t fully materialized yet. Sydney, where dwelling prices have jumped 8.3 percent so far this year, recorded an auction clearance rate of 84.3 percent last weekend, figures from researcher RP Data show.
SQM forecasts an increase of as much as 8 percent in Perth, 7 percent in Melbourne and Brisbane and 6 percent in Adelaide, Hobart and Darwin in 2014.
In SQM’s best-case scenario, which assumes a strong economic recovery and interest-rate increases in mid-2014 or earlier, prices across Australia’s major cities could surge as much as 18 percent on average in 2014, led by price growth as high as 30 percent in Sydney, as much as 15 percent in Perth, 12 percent in Brisbane and 11 percent in Melbourne.
In its worst-case scenario, which assumes a crash in Australia’s terms of trade, rate cuts of at least 100 basis points and a local currency below 80 U.S. cents, SQM forecasts prices will still rise by between 4 percent and 7 percent, with Sydney recording increases of as much as 15 percent. Only Perth, Darwin and Canberra will probably see declines under that scenario, it said.