Having gained 9.1% over the past year according to CoreLogic RP Data, Sydney home prices could increase as much as 18% in 2017 say SQM Research.
In the company's latest Boom & Bust Report, analyst Louis Christopher from SQM Research is forecasting a gain of between 13% and 18% for Sydney, should the RBA cut the official cash rate by 0.25% by mid-2017.
Even if the RBA doesn't reduce interest rates, Mr Christopher is predicting gains of between 11% and 16%, and if the central bank does raise rates by 0.25% Sydney prices could see increases of between 8% and 13%.
Melbourne fares similarly with a rate cut generating growth of between 12% and 17%, no change seeing 10% to 15% gains in property prices and growth of between 8% and 13% – the same as Sydney if the RBA raises rates.
Darwin and Perth are expected to continue falling, as much as 9% if the RBA raises the cash rate.
Other capital cities should see single digit growth no matter what the central bank does.
That has consequences for mortgage insurers like Genworth Mortgage Insurance Australia (ASX: GMA), which is seeing lower business thanks to the banks writing less high loan to valuation ratio (HLVR) loans, particularly in resource states of Western Australia and Queensland.
In fact, the company today reported that it had seen higher levels of delinquencies in regional economies dependent on the resources sector. The news has seen Genworth's share price tumble on Friday. It also has consequences for the big four banks – which could see higher bad debt charges slash profits and dividends.
Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have already started reporting a rise in the bad debt cycle, suggesting the cycle has hit bottom and is now heading upwards.
Mr Christopher also forecast an oversupply of new houses in 2017 and 2018, particularly in Brisbane. Queensland's state capital has numerous apartment building currently under construction in and around the CBD.
That could see property prices sink and flow through to detached houses.
In my view, Sydney home prices could tumble 18% next year if as expected there is an oversupply of housing. I certainly wouldn't be betting the house (excuse the pun!) on home values rising 18%.
