2015 outlook mainly positive

2015 outlook mainly positive

Posted on Thursday, December 18 2014 at 10:05 AM

According to CoreLogic RP Data head of research Tim Lawless the housing market is moving into the 2015 calendar year with some substantial momentum, with dwelling values 8.5 per cent higher compared with a year ago across the combined capitals. The growth comes on a backdrop of slowing conditions though, with the annual rate of capital gain peaking early in the year at 11.5 per cent over the 12 months ending April.

While values are still rising at a healthy rate, at least at a high level
and in trend terms, Lawless anticipates that 2015 will see the housing market
dynamic shift geographically. According to Lawless:


Sydney: Housing market conditions
have been nation-leading over the current cycle with dwelling values up by 31
per cent over the cycle to date.  The rate of capital gain is slowing down
though, after the annual rate of growth peaked in April last year at 16.7 per cent. 

By the end of 2014 we expect the annual rate
of growth will have slowed to approximately 12.5 per cent. We expect the
trend towards a more sustainable rate of capital gain to continue over the 2015
due to natural affordability constraints that are becoming increasingly evident
in the market, as well as a reduction in investor demand, which will likely be
attributable to the low yield environment as well as tougher investment lending
requirements from the banking sector.


Melbourne: The Melbourne housing market has played
second fiddle to Sydney’s rate of capital gain over the current growth cycle,
with values moving a cumulative 17.6 per cent higher by the end of November
this year.  The rate of annual growth across the Melbourne housing market
has been slowing since January when dwelling values had moved 11.9 per cent
higher over the 12-month period.  By the end of 2014 we expect the annual
rate of capital gain to have drifted back to approximately eight per cent. 
This slowing trend is likely to continue through 2014 as investor demand is
dampened by the low rental yield scenario as well as tighter finance controls
around investment lending from the banking sector. New housing supply
across the inner city area of Melbourne and the outer fringes has been
sufficient when compared with population growth, which is also likely to soften
the level of capital gains over the coming year.


Brisbane (along with Adelaide and Hobart) is one of only three capital cities
where the annual rate of capital gain is likely to be higher this year than it
was last year. We are expecting the annual rate of capital gain to finish
the year around the seven per cent mark, compared with a 5.1 per cent capital
gain over the 2013 calendar year. With the rate of capital gain holding
relatively firm over the second half of 2014, fewer affordability pressures and
better rental yields than Sydney or Melbourne, we’re expecting growth in
Brisbane dwelling values to outperform the capital city average over the coming


Adelaide: Despite
the uncertainty in the local economy, the Adelaide housing market is likely to
finish the 2014 calendar year with a higher rate of capital gain compared with
the 2013 calendar year. We’re expecting Adelaide values will have
increased by approximately 3.5 per cent in 2014 compared with a growth rate of
2.8 per cent over 2013. Transaction numbers have been rising over the
second half of the year indicating a rise in buyer demand, affordability
pressures are relatively tame and rental yields are higher than what can
typically be found in Sydney and Melbourne.  While we aren’t expecting
values to surge across Adelaide in 2015, a steady market with values continuing
to show a modest rise is the likely outcome.


The Perth housing market moved through the peak of its growth cycle in December
2013 when then annual rate of growth was recorded at 9.9 per cent. Since
then the annual rate of growth has drifted substantially lower and we expect by
the end of 2014 the annual rate of growth will be closer to one per cent. 
Population growth into Western Australia has slowed sharply, which is reducing
demand for housing at a time when there is a large amount of new detached housing
approved for construction. Additionally, the previously strong Western
Australian economy is progressively weakening as the pipeline of large infrastructure
projects winds down. Dwelling values are likely to continue their weak
trend and may potentially end the next calendar year lower.


Hobart: The
Hobart housing market has been the weakest of any capital city post GFC. In
fact, Hobart dwelling values remain 3.9 per cent lower than what they were at
the beginning of 2009. More recently, housing market conditions have
started to improve across Hobart. Transaction numbers have recorded a sharp
rise from a low base and dwellings show a remarkable level of affordability
compared to other capital cities and gross rental yields are the second highest
of any capital city after Darwin. Dwelling values are likely to finish the
2014 calendar year about six per cent higher, and as demand from lifestyle
buyers continues to rise, we expect Hobart home values to continue their
moderate trend higher during 2015.


The Darwin housing market has been a solid long-term performer, recording the
highest rate of capital gain over the past decade across the capital
cities.  Dwelling values have increased by 17.5 per cent over the length
of the current growth cycle, however growth in dwelling values has been
trending lower over the second half of 2014. The 2014 calendar year is
likely to see Darwin dwelling values increase by approximately 1.5 per cent. Prospects
for further growth over 2015 are diminishing due to a wind down in the major
infrastructure projects that are currently under way in Darwin. The Darwin
housing market is still providing the highest gross rental yields of any capital
city market, however it’s likely investor demand will taper in line with
capital growth.


The national capital’s housing market saw a material slowdown over the second
half of 2014 with dwelling values likely to finish the second half the calendar
year approximately one per cent lower.  Uncertainty surrounding the local
labour market, Federal Government job cuts and potentially an oversupply of
housing are all factors that are likely to contribute flat to falling housing
values during 2015.


Regionally: We’re expecting ‘lifestyle’ markets to continue their bounce back in
buyer demand and values.  At the same time, the downturn in commodity
prices and mining-related infrastructure spending is likely to continue to
dampen housing markets across resource intensive regions.


Lawless says central to housing
market performance will be the direction of interest rates. There’s
growing debate that the next rates movement may be down rather than up. A
further reduction in the cash rate will bring mortgage rates even lower than
their current record low settings. Theoretically, lower rates should
provide a boost to housing market conditions, however if this stimulus does
transpire, it’s likely to be balanced by pervasively low consumer confidence
and softer labour markets, which show unemployment is already at its highest
level in a decade and forecast by Treasury to move higher over the coming

Additionally, Lawless says, the impact of the
recent APRA announcement around investment lending may act to restrict the
availability of finance to investors. The banking sector will be under
scrutiny to keep growth in investor loans at slower than 10 per cent pace of
growth, which is likely to have some downwards pressure on investor-related
housing demand.

Overall, we’re expecting another solid year of
housing market conditions and further capital gains, albeit at a more
sustainable rate that what we’ve seen over 2014.

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