2016 Will See Melbourne Shine in a Slowing Property Market

Australian dwelling prices are forecast to rise in 2016 at the slowest pace since 2012.

SQM Research’s latest Housing Boom and Bust Report forecasts that average capital city dwelling prices will rise between 3% and 8% in 2016.

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 from 8% to 13%.

Other contributing factors include:
An ongoing housing market correction in the resources exposed 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 Westpac announcement to lift variable home loan rates out of sync with the cash rate.

On the plus side, it is believed 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.
Ongoing low interest rates and the possibility of an official rate cut in early 2016.
Ongoing robust Melbourne housing market forecast to rise by 8% to 13%.
Nationally, rents are likely to remain flat with expected changes of between 0% and 3%.

It is predicted that the national residential housing market will slow in 2016, predominantly as a result of a slowing Sydney housing market.

However a fall in prices for the 2016 year is not anticipated, other than perhaps one quarter where Sydney records a marginal decline.

But that should be it.

Predictions are that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart.

Each of these 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.

There is evidence that rent increases will slow further in 2016, but Hobart, Melbourne and the Gold Coast will likely record the strongest rental increases.

The threat of a massive oversupply in Melbourne has probably been overstated.

Indeed our vacancy rates for Melbourne have fallen for the year as population growth and housing formation have quickly absorbed the new stock being completed.




Article edited for space and relevance. Article by Louis Christopher: Louis is recognised as one of Australia’s most respected and impartial research property analyst. He has extensive knowledge and experience of property and is regularly quoted in the media on his insights and is director of SQM Research.