A Year in Review - Property Trends of 2016
Over the course of 2016 real estate, prices in particular, was once again a major talking point between family and friends, written extensively about by journalists and were a major focus of politicians during the federal election campaign. So let’s take a short look back at how markets faired over the year.
Nationally, property values increased by more than 10% over the course of 2016. This unexpectedly strong result – forecasts at the end of 2015 where for around 5% - was driven by elevated levels of buyer demand – thanks to record low interest rates – and a distinct lack of properties on the market for sale.
However, 2016 was really a tale of two market types; those on the up and those on the down.
On the up side, Sydney and Melbourne were again the two standout performers with dwelling values in Sydney rising by more than 15% and Melbourne over 13%, according to CoreLogic. This result was driven by strong levels of investor and owner occupier buyer demand and a distinct shortage of properties on the market for sale. The shortage in stock, in both these markets, has been compounded by sellers holding off listing until they find another property to move to.
On the other side of the coin, Perth and Darwin saw prices soften. This was due to the economic headwinds faced by each city which in has in-turn led to more properties being listed for sale and buyer demand easing off.
The two surprise performers of the year were Canberra and Hobart with both cities seeing their median sales price rise by 9.3% and 11.2% respectively. This was due an increase in interstate buyer demand who want the higher affordability and yields which both cities offer. In addition, Canberra also saw a return of government workers as public employment rose.
Supply & demand
Once again the supply and demand fundamentals tell the story behind each markets movement.
On the supply side many markets saw building approvals and construction reach record levels particularly in Melbourne, Brisbane and Sydney. However, increased construction activity has not yet dampened price growth in these markets. This is because nearly all of the new dwellings completed in 2016, and due to complete in 2017, were apartments. Plus, the majority of the new supply is only limited to a handful of inner city suburbs with listings of existing properties in serious shortfall in most capital cities.
Although, the opposite can be said for Perth and Darwin where new supply has simply added to the large amount of existing properties on the market for sale.
And what about the demand side of the equation? Well it’s was pretty strong – Perth, Darwin and some regional mining focused towns aside. Investors, owner occupiers, downsizers, upgraders and rentvestor’s were all very active in 2016. Record low interest rates, falling unemployment levels, ongoing population growth and the prospect of strong capital gains remain the keys to buyer demand.
So what’s install for 2017?
The supply of new apartments and interest rates will be the two key forces that drive property markets over the coming 12 months.
The large amount of new apartments which have been approved, over the past few years, will begin to reach completion. Although these won’t affect the detached housing market, they will dampen price growth overall, especially in a handful of inner city suburbs.
Interest rates will also play a big role in 2017. A lot of mortgage providers increased their rates, independently of the RBA, towards the end of 2016. Rising government bond yields and further higher US interest rates may lead to higher funding costs for Australian banks. This means more interest rate increases over the coming year.
Despite this, buyer demand is expected to remain strong, thanks to ongoing employment and population growth. However, the increased cost of funding a home loan may force some to re-think their buying options and see prices growth moderate from very strong levels seen over the past two years.