After a head spinning 2015, our property markets started 2016 with a bunch of mixed predictions.
Some called a property bubble, while others forecast lower, but continuing capital growth.
Well…the scorecard is in for the first quarter of the year and our property markets slipped down a gear^, with an annual price growth rate of 6.4% over the last 12 months which, while being the slowest growth rate in almost 3 years, is still above Australia’s 10 year average growth rate of 5%.
Melbourne now the leader of the pack
For the last few years it’s really been a two horse race with both the Sydney and Melbourne markets performing strongly, and the other capital cities lagging behind as can be seen below^:
And while the conga line of overseas economists predicting doom for our property markets continued, the stats suggest we are not in bubble territory, as none of our capital city markets exhibited extraordinary growth over the last 10 years^: –
Why Sydney and Melbourne?
The main reasons property values in our 2 big capital cities grew so strongly was their robust economic and jobs growth as well as massive population growth, with around 60% of the immigrants coming to these two cities to chase the jobs there.
At the same time residents moving from Sydney and Melbourne to other states, particularly Queensland and Western Australia, has slowed dramatically since the end of the mining boom.
Also property investors chasing capital growth have been targeting these cities, but this has now weakened.
Let’s now look at some of our major property markets in a little more detail:
Median house price: $805,000; 7.5% increase in last 12 months.
Median unit price: $645,000; 7.3% increase in last 12 months.
Vacancy Rate: 1.6%
The Sydney market is taking a well earned breather with house prices now falling a little in some locations, but overall they’re up 49.2% from the previous market trough in 2012.
The fundamentals for the Harbour City property market are sound because jobs are being created there and its population continues to grow strongly.
“While the media reports that the Sydney property market has dropped a little, and that is true, the market is very fragmented with a shortage of good properties in the inner west and eastern suburbs at a time when there are still strong demand from buyers – both and investors.” says George Raptis, director of Metropole Property Strategists in Sydney.
“The current lull in the property market is creating a great opportunity for both home buyers and investors with a long term perspective, but careful property selection is critical.
“Our strong state economy, major infrastructure spending, strong population growth and low vacancy rates means that some segments of Sydney’s property market are likely to revive in the second half of 2016.
“Homebuyers are selecting more carefully now and their decisions are being driven by lifestyle with many trading backyards for balconies in well-located apartments in Sydney’s gentrifying suburbs. On the other hand, I would be very wary of buying in the outer, blue-collar suburbs where prices are likely to fall further.” says Raptis.
Median house price: $610,000; 10.7% increase in last 12 months.
Median unit price: $469,000; 2.5% increase in last 12 months.
Vacancy Rate: 2.0%
The Melbourne market continues to perform strongly with house prices now at record levels, up 35.7% since the previous market trough.
“While Melbourne home values have risen at the fastest pace of all the capital cities over the last 12 months, it’s really a tale of two cities in the one big capital,” said Kate Forbes, of Metropole Property Strategists in Melbourne,
“There is still a significant oversupply of new apartments in the CBD and in many of our inner suburbs plus a record number of new apartments are still coming out of the ground or on the drawing board. This will undermine capital gains and rental growth in these locations.”
“Yet there is a shortage of well located established homes and apartments in Melbourne’s middle ring suburbs with demand outpacing supply, keeping auction clearances high and prices strong. “
“Melbourne’s economy is strong, fuelled by lower dollar and interest rates and property prices are more affordable than in Sydney yet our incomes are comparable.”
“Currently there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations. And if your budget allows, buying a villa unit or a small house in the right suburb should deliver strong capital growth over the next few years.” she says.
Watch out for part 2 tomorrow when we provide an update on what’s happening in the property markets in Brisbane, Perth, Canberra Darwin and Hobart.
Future property price growth will, as usual, depend upon economic growth and local market factors.
The key growth drivers will be:
- economic growth
- jobs growth (or concerns about unemployment)
- wages growth
- population growth (which will chase jobs and wages growth)
- interest rates – while official rates are likely to remain low, it is possible that the banks will again raise rates over the coming year causing market jitters
- consumer confidence – this may falter for a while once the federal election is announced
By the end of the year Melbourne is likely to be the strongest performing property market followed closely by Brisbane with Sydney taking up third place. Find a property in Melbourne or find an agent in Melbourne.
Author: Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.