According to the December CoreLogic Home Value Index, the month saw city dwellings rise by 1.4 per cent, taking the annual capital gain for 2016 to 10.9 per cent – the highest growth rate in seven years.
Results divergent across the country
Although housing as an asset class earned a total annual return of 14.7 per cent based on the combined capital cities index, the report also revealed a divergence in results between cities.
The annual change in city dwelling values across the country ranged from 15.5 per cent in Sydney to -4.3 per cent in Perth, while cities including Melbourne and Hobart both recorded capital gains higher than 10 per cent.
Additionally, Australia’s regional housing markets did not experience the same growth conditions as cities, with annual growth to November 2016 recording a 2.8 per cent rise across combined regional markets.
Regional NSW showed the strongest growth, with house values rising 7.3 per cent over the last year, while regional Western Australia fell by 7 per cent in housing value and the remaining regions showed “relatively sedate conditions”.
Overall, the findings revealed that while Sydney remained the most expensive city to live in, recording an increase of $10,000 per month in dwelling value, the best performing city for the quarter ending 31 December was Darwin, up by 5.9 per cent, while the weakest performing city was Adelaide, down by 1.6 per cent.
Headwinds ahead for housing market
Tim Lawless, head of research for CoreLogic, noted that while the housing market across capital cities had produced significant growth over the last calendar year, it was likely to “face some headwinds” in 2017 as a result of the predicted moderation of growth rates.
“It’s clear that housing markets across Australia have responded to regional differences in economic and demographic trends,” he said.
“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”.
Mr Lawless added that mortgage rates had been trending higher toward the end of 2016, which had “the potential to quell housing demand, especially considering the record-high levels of household debt, which implies consumers are highly sensitive to changes in the cost of debt”.
He concluded by saying he expected consumer confidence to affect buyer demand and that there was a “high correlation between consumer confidence and housing turnover, so if confidence measures continue to track lower, we can expect consumers to be less willing to make high commitment decisions such as purchasing a property”.
“While we expect 2017 dwelling values to rise at a lower rate than in 2016, there is still potential for further growth across Australia’s housing market,” he said.
[Related: Housing growth cycle moderates]