Australian house prices are forecasted to rise in 2016 at the slowest pace recorded since 2012, new research has revealed.
SQM’s newly released 2016 Housing Boom and Bust Report forecasts that average capital city dwelling prices will rise between 3% and 8% for the full calendar year. This is down from the current 9.8% recorded for the 12 months to June 2015 and the slowest annual growth since 2012.
According to the report, the slowdown will occur predominantly as a result of a slowing Sydney property market, which is forecasted to rise between 4% and 9%.
However, other contributing factors to this slowdown include an ongoing housing market correction in the resources exposed capital cities of Perth and Darwin, APRA’s lending restrictions filtering through the market and a slower Australian economy with nominal GDP forecasted to rise between 1.2% and 1.7%.
According to the report, Melbourne is forecasted to overtake Sydney and be the best performing capital city in 2016 with a forecast rise in dwelling prices of between 8% to 13%.
SQM Research managing director, Louis Christopher, says the market will not record a fall in house prices over the year, but there is a key risk threating the strength of our housing market.
“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 we note has risen again against incomes over the course of 2014/2015 to be at all-time highs,” he said.
“This threat became all too apparent last 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 we believe the RBA
has some ammunition to offset this looming risk however we are concerned of their ability to handle the issue over the medium to long term.”