Diverse Performance Predicated for 2017 Real Estate
At a macro level, housing markets finished the year on a strong footing with capital city dwelling values continuing to rise. In the December quarter of 2016, dwelling values increased 2.1% across the combined capital cities, representing a slower rate of growth compared to the2.9% growth in the September quarter.
The past 12 months have seen the pace of capital gains improve compared with 2015, with capital city dwelling values increasing by 10.8% over the year ending December 2016, which is a higher pac of capital gains than the previous year when dwelling values rose by 7.8%. Although home values are continuing to trend higher, the pace of capital gains remains below the cyclical highs recorded over the year ending July 2015, when capital city dwelling values increased by 11.1%. Based on the most recent growth in dwelling values, as well as the addition of new dwellings, CoreLogic estimates the total value of residential dwellings across Australia reached $6.8 trillion at the end of December 2016.
The trend in capital gain has been diverse across the regions and housing types. Dwelling values increased 15.5% in Sydney over the year, which was the strongest rate of annual value growth amongst the capital cities, while Melbourne came in a close second with 13.7% growth. Hobart and Canberra have shown some acceleration in their rate of growth over the past year with dwelling values increasing by 11.2% and 9.3% respectively.
Values also increased over the year ending December 2016 across Adelaide (4.5%), Brisbane (3.6%) and Darwin (0.9%). With Darwin dwelling values demonstrating some moderate growth in the December quarter, the annual rate of growth returned to positive territory for the first time since February 2015. Perth was the only capital city to see a decrease in dwelling values, down 4.3% over the year.
The outlook for 2017 is continued diversity in housing market performance across the regions and product types. A record number of dwellings were approved for construction last year particularly across the inner city unit markets of the larger capital cities. Higher supply may contribute to a slower rate of value appreciation over the year, however we are also seeing some barriers to the market from housing affordability and changes to mortgage rates.
While Sydney and Melbourne have stood out for their high rates of capital gain since mid-2012, some of the smaller capital cities and regional markets are now showing a trend towards accelerating housing market conditions. Regional areas linked to the mining sector have demonstrated very weak conditions, however higher commodity prices and stabilizing housing demand may see these areas show a healthier performance over the coming year. Although mortgage rates have recently shown some subtle upward movements recently, it is likely that interest rates will remain historically low for the foreseeable future, which should keep a floor under housing demand during 2017.