Australian dwelling prices are forecasted to rise in 2016 at the slowest pace recorded since 2012.
This is down from the current 9.8% recorded for the 12 months to June 2015.
The slowdown will occur predominantly as a result of a slowing Sydney property market, which is forecasted to rise between 4% and 9%.
Melbourne’s’ property market is forecasted to overtake Sydney and be the best outperforming capital city in 2016 with a forecast rise in dwelling prices of between 8% to 13%.
Other contributing factors to this slowdown include:
- An ongoing housing market correction in the resources exposed capital cities of Perth and Darwin.
- The APRA actions (announced mid-2015) of restricting credit growth.
- A slower Australian economy with nominal GDP forecasted to rise between 1.2% and 1.7%.
- The recent announcement by a leading major bank that they are lifting variable home loan rates out of sync to the current cash rate.
- On the plus side, we believe it is highly unlikely that an across the board correction will occur next year, this is based on the following factors:
- The Australian dollar is likely to stay at current low levels and indeed may fall further, thereby providing a buffer to the economy and the housing market.
- An ongoing low interest rate environment and the possibility of a rate cut in early 2016.
- An ongoing robust Melbourne housing market which is forecasted to rise by 8% to 13%.
Nationally, the rental market is likely to see a continued flat market with expected rental changes of between 0% and 3%.
Darwin is tipped to record another year of significant declines in rents of -12% to -8%.
While Hobart is tipped to record the fastest rental growth of all capital cities at +5% to +8%.
I see the national residential housing market slowing down in 2016, predominantly as a result of a slowing Sydney housing market.
However I do not believe the market will record a fall in prices for the year.
There might be one quarter perhaps where Sydney records a marginal decline.
But that should be it.
Perth and Darwin will record falls again next year however I believe by the end of the year, both those cities may reach the bottom of their four year downturn.
I believe that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart.
Each of these respective cities are benefiting from the lower Australian dollar.
One of the key risks to the housing market over the medium to long term is the looming threat of global deflation and this is quite a danger to our markets here given the level of debt in the housing market right now, which has risen again against incomes over the course of 2014/2015 to be at all-time highs.
This threat became all too apparent this week when Westpac lifted their variable home loan lending rate
In a global deflationary environment the risk premiums banks would require on their lending book would most likely skyrocket due to the greater threat of defaults and falling asset prices.
For 2016 I believe the RBA has some ammunition to offset this looming risk however I am concerned of their ability to handle the issue over the medium to long term.
This year, it has become quite apparent that rents have slowed, possibly as a result of the lower inflationary environment.
There is evidence that rents will slow further in 2016 with our average capital city forecast to be 0% to 3%.
Perth and Darwin will experience the largest falls in rents however this is just part of an ongoing trend currently being recorded in these two cities.
Hobart, Melbourne and the Gold Coast will likely record the strongest rental increases.
I believe the threat of a massive oversupply in Melbourne has been overstated.
Indeed our vacancy rates for that city have fallen for the year as population growth and housing formation have quickly absorbed the new stock being completed.
In terms of last year’s forecasts and how they fared, it is pleasing to see that once again SQM were accurate in our prediction for a rise in national dwelling prices of “7-12” assuming a rate cut, which did indeed happen.
However, we were a little under the Sydney forecast and a little over some other capital cities.
But as far as I can see, no one came closer than us for this year, which I think is now the fourth year running in correctly picking the housing market.
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