Sydney has finished 2016 as the best-performing capital city for property value growth, in a year that saw the highest annual growth rate across the combined capitals in almost a decade.
Dwelling prices in the NSW capital went up by 15.5% over the year, according to the latest figures from CoreLogic, while Melbourne dwellings saw a 12-month increase of 13.7%.
The surprise package of the year, Hobart, also saw double-digit percentage growth of more than 11% over 2016.
The strong performance of the big two markets helped push up combined capital city dwelling values by 10.9% over the year, which CoreLogic reports was the highest growth rate for a calendar year since 2009.
“The housing sector certainly seems to have finished off 2016 with a bang,” said CommSec senior economist Savanth Sebastian. “It was encouraging to see that the lift in home prices was more uniform across the capital cities, and even regional house prices recorded a healthy lift.
“No doubt the improvement in economic conditions and low interest rates continues to fuel the interest in property,” he said.
CoreLogic head of research, Tim Lawless, attributed Sydney and Melbourne’s healthy performance to strong population growth and economic activity. Sydney-siders have seen their properties almost double in value since 2009, and are now dedicating an average of 44.5% of their income to service their mortgages, according to CoreLogic’s recent Housing Affordability Report.
Beyond Melbourne and Sydney
Of the six smaller capital cities, Canberra almost matched Hobart’s strong performance with annual dwelling value growth of 9.3%.
The Adelaide and Brisbane markets performed comparably, with annual growth of 4.2% and 3.6% respectively. The SA capital recorded a quarterly drop of 1.8% in the three months to 31 December, following an otherwise decent 2016.
Darwin’s 5.9% spike over the final quarter helped the NT capital finish the year with marginal annual value growth of 0.9%, while Perth was the only capital to go backwards over 2016, with property prices down by more than 4%.
CommBank senior economist, Michael Workman, attributed the WA capital’s poor performance to “the weakness of its jobs market and the related outflows, or return, of people to the east coast cities”.
Australia’s regional housing markets generally did not experience the same growth conditions as the capital cities, according to Lawless. The strongest performer was regional NSW, where house values rose 7.3% over the 12 months to November. At the other end, regional WA recorded an annual fall of 7%.
“Those regional areas with intrinsic ties to the mining and resources sector have continued to record weaker housing market conditions since the end of the mining infrastructure boom,” said Lawless.
But Sebastian suggested that “looking forward, the lift in commodity prices may mean that the mining towns have come through the worst of the downturn”.
The house/apartment divide
In almost every capital market, value growth was stronger for houses than apartments. The variation was especially noticeable in Melbourne, where house prices went up by more than 15% over 2016 but units only saw value growth of 1.7%.
“The divergence in growth rates is the most distinct in Melbourne and Brisbane, where concerns around unit oversupply have eroded buyer confidence,” Lawless argued. Brisbane house prices were up 4% while apartments fell slightly.
The only capital to go against this trend was Darwin, where apartment prices went up by 5.7% over 2016 but house price growth was flat.
Outlook for 2017
Lawless and Workman both predicted some “headwinds” coming for property prices in the year ahead.
“New apartments in the cities and suburbs are expected to dampen price growth considerably through 2017,” said Workman. He also predicted that “financing costs are not likely to fall through 2017 and fixed mortgage rates are expected to keep rising in line with higher US longer-term interest rates.
“Relatively modest household income growth is in prospect for 2017 and should weaken housing finance demand,” he said.
Workman also argued that “the strength of the dwelling price rises argues against the need for any more RBA rate cuts”.