If the final quarter of 2015 is anything to go by, the housing market in 2016 is likely to see softer conditions and potentially some improvement in affordability as values slip lower after three and a half years of strong growth.
The final three months of 2015 saw capital city dwelling values fall by 1.4 per cent, led by weaker conditions in Sydney and Melbourne where dwelling values were down by 2.3 per cent and 1.9 per cent respectively.
The down phase of the market is already well established in Perth and Darwin where home values fell 3.7 per cent and 3.6 per cent over the 2015 calendar year respectively, while conditions were broadly steady in Adelaide and Hobart where the decline in home values was only slight at 0.1 per cent and -0.7 per cent respectively.
Sydney and Melbourne led the charge for growth in dwelling values over the year with the market moving 11.5 per cent and 11.2 per cent higher over the full year. Growth in Brisbane and Canberra were much more sustainable with dwelling values rising by 4.1 per cent in both cities over the full year.
Looking at the outlook for capital gains this year, we may see moderate value declines in Sydney and Melbourne, however considering population growth has remained strong in these areas and economic conditions are very healthy, we would be surprised if dwelling values fell much before conditions start to level.
The city that is showing the most promise for capital gains in 2016 is Brisbane, or for that matter, the broader South East Queensland region. Yields are much higher compared with Sydney and Melbourne, the rate of capital gain has been moderate but sustainable to date, and Brisbane’s affordability is far superior to the two larger East Coast cities as well.
Interstate migration remains positive into Queensland and may start to move higher with the healthier rate of job creation over the past year. The Canberra housing market has also been showing tentative signs of growing values along with Hobart however, market conditions have been more volatile from month to month in these areas.
The regions that are likely to underperform are those associated with a higher degree of economic uncertainty. The Darwin and Perth housing markets peaked in late 2014 and both home values and rental rates have fallen over the past year. The rate of decline may start to ease in these cities; however growth prospects are likely to be at least a year away in these markets.
The Adelaide housing market has remained relatively steady over the year, with values virtually unchanged in 2015. However, as the manufacturing sector continues to wind down in the region, coupled with the soft resources sector, the economic outlook for the city isn’t likely to have a positive influence on housing market conditions in the area.
Where are you tipping as a property hot spot in 2016? Tell us in the comments below.