A rate cut will fail to lift flattening house prices as stagnant economic growth takes centre stage, according to a leading economist.
Dr Andrew Wilson, senior economist at Domain Group, predicts 2015 will be a modest but generally steady year for capital city housing market performances.
In Domain Group's housing report for the December quarter, released this week, Dr Wilson said the significant impact on affordability from low and falling interest rates of the past two years has now largely dissipated.
“Despite the increasing prospect of a further official rate cut, local economic factors will determine price growth,” he said.
“Most markets will record prices growth around the inflation rate dependant on local supply and demand factors and economic parameters.”
Dr Wilson said the difference between the performances of capital city markets will be marginal.
Brisbane, Darwin and Hobart are likely to be the best performers, with Melbourne and Adelaide in the mid-range and Canberra and Perth recording more modest growth, he said.
“Irrepressible Sydney will again prove to be the notable exception.”
Dr Wilson forecasts median house price growth will push up again towards double figures over 2015 and is expected to break through the $900,000 barrier sooner rather than later.
“Despite the recent stellar performance of the Sydney market, capital city house price cycles are set to generally flatten and converge over the foreseeable future within an environment of stagnant national economic growth and historically low interest rates,” he said.
Most capital city housing markets saw a revival in price growth over the December quarter with Sydney remaining the runaway leader, according to the report.
Domain Group data shows the national median house price increased by 2.1 per cent over the quarter, contributing to a 7.1 per cent increase for the year. The national median unit price increased by 1.7 per cent over the quarter and 6.0 per cent over 2014.
This quarter’s strong national results are largely due to the momentum of the Sydney market, which is still achieving consistently strong growth, Dr Wilson said.
Over the December quarter, the median house price in Sydney increased by 4.1 per cent while the median unit price rose by 2.9 per cent. Over 2014, the median house price in the city increased by an exceptional 14.1 per cent and units were up by 10.4 per cent.
“Thanks to its status as the strongest capital city economy with high migration levels, chronic shortage of housing and heady levels of confidence from buyers and sellers, Sydney remains the dominant force amongst the capital cities,” Dr Wilson said.
Darwin was the only capital city to record a fall in house prices during the December quarter. The median house price fell sharply by 6.0 per cent; unit prices in the city also recorded a decrease of 4.3 per cent over the three months.
“Declining local economic performance continues to impede housing market activity in Darwin and Perth; however, Perth did experience a modest increase of 1 per cent for houses and 0.6 per cent for units over the quarter,” said Dr Wilson.
After recording falls over the September quarter, Brisbane house prices increased solidly by 1.5 per cent over the December quarter.
“While Brisbane house prices increased by 6.1 per cent over the year for the city’s best annual result since 2009, unit prices dropped by 3.3 per cent over 2014, reflecting the impact of high levels of inner city apartment construction,” Dr Wilson said.
In Adelaide, house prices increased marginally by 0.3 per cent and unit prices fell by 1.2 per cent over the December quarter.
Hobart saw its second consecutive quarter of house price growth while Canberra continues to record volatile results.
Melbourne’s house prices again increased only slightly – up by 0.6 per cent over the quarter and 3.4 per cent over the year.
“Melbourne’s modest results were not surprising given declining local auction clearance rates and weakening ABS home loan data recorded over spring," Dr Wilson said.