The performance of individual capital cities remains somewhat diverse. Sydney and Melbourne continue to record much stronger annual growth rates, while the rest of the cities are seeing relatively slow growth or minor value falls.
It is important to note that the rate of growth in Sydney and Melbourne is slowing. Considering the large weighting applied to Sydney and Melbourne within the combined capitals index (due to the large number of homes), one can expect a further moderation in the headline rate of home value growth across the combined capital cities.
There are signs that value growth in Brisbane, Hobart and Canberra may be picking up, however, the improving trend is, so far, inconsistent from month to month. In Adelaide, value growth looks set to remain quite moderate. In Perth and Darwin, values are continuing to fall, however, there are signs that the rate of decline is starting to slow.
The slowing in the growth in combined capital city home values is something CoreLogic RP Data expects will continue throughout the remainder of 2016.
The slowing down is due to a number of reasons, including:
The ongoing diversity in the housing market highlights the different growth drivers that are evident from region to region. The economies of Sydney and Melbourne are relatively sheltered from the downturn in the resources sector and benefited from a very healthy services sector and positive population inflows, while the mining states and territories are experiencing softer economic conditions and a sharp wind down in population growth, particularly from overseas migration.
Despite both cities having recorded strong growth in values over recent years, it seems that better affordability in Melbourne compared with Sydney’s housing market is resulting in some resilience to slowing capital gains across Melbourne housing.
The annual expansion in investor related housing credit has now dropped to a pace that is much lower than APRA’s mandated 10% growth p.a., while credit growth for owner-occupiers is expanding.
With many banks now placing a premium on investment mortgage interest rates and also increasing mortgage rates and serviceability limits on all mortgages, a slowing in investment housing demand is evident. However, there was a slight up-tick in demand from this segment over recent months.
The cumulative effect of tighter lending conditions, more expensive mortgage rates for investors and lower yields, as well as natural affordability constraints and higher levels of new housing supply, is likely to continue to impact the Sydney housing market, resulting in a further slowdown over the year.
It is also expected that as the year progresses the rate of home value growth in Melbourne will also slow, however, the slowdown is likely to be more moderate than the slowing in Sydney, at least during 2016.
South-East Queensland looks set to see further increases in housing demand and potentially stronger value growth throughout the year. Hobart and Canberra also appear better set for value growth over 2016 due to improving housing and economic conditions and relatively more affordable housing compared with Sydney and Melbourne.
Adelaide is likely to show only moderate rates of value growth this year. In the meantime, it is anticipated that values will continue to fall in trend terms throughout 2016 in Perth and Darwin, however, there are signs that the rate of decline is starting to slow.