Capital city house prices rise 7.9pc in 2014, but expert expects growth to slow in 2015

Updated

Australian capital city house prices rose almost 8 per cent last year, with Sydney's property market leading the annual gains, according to data released today.

The widely-watched CoreLogic RP Data Hedonic Home Value Index showed capital city house prices rising by an average 0.9 per cent in December.

That capped off a year which saw capital city homeowners' properties add an average 7.9 per cent in value over the past 12 months.

But analysts warned growth was likely to slow this year.

Hobart led the monthly gains with a 2.7 per cent increase in December, but its average property sale price was up just 3.5 per cent over the year.

Annual gains continued to be led by Sydney which, despite a flat December, posted a 12.4 per cent rise in prices over 2014.

The market with the next highest level of housing price inflation was Melbourne, where values rose 7.6 per cent, which included a 1.6 per cent bounce last month after a fairly weak spring quarter.

CoreLogic research director Tim Lawless said there were a few reasons why Sydney and Melbourne had experienced much greater price growth over recent years.

"That's been a phenomenon driven by both investors - the investor segment's been very active in both those markets - and also partly influenced by some foreign buying behaviour, which is much more focused on the inner-city apartment markets of those two cities," he said.

Brisbane and Adelaide recorded solid price rises in the 4 to 5 per cent range, while all other capitals had modest price growth, except Canberra, where a 0.6 per cent price slide in December led to a 0.6 per cent fall over the year.

Outside the capitals, house prices rose a modest 2.9 per cent over the year to November.

Slower growth, weak rents forecast for 2015

Mr Lawless said those trends were likely to continue, although he said slower price growth for Sydney would probably drag the national average rise down to between 5 and 6 per cent this year.

"Sydney's still a very strong market, but we're expecting that to moderate," he said.

"Brisbane has been gathering some momentum. It's starting to gather more attention from the investor segment as well because of higher yields and lower prices and the fact that it's quite early in the growth cycle.

"I think the marketplaces that are already experiencing a slowdown are clearly Canberra, where we've seen values fall over the past 12 months, also in Perth and Darwin where those markets are now being affected by the slowdown in resources and major infrastructure."

Mr Lawless said that slowdown in prices across many cities was also likely to drag new home construction away from 2014's record highs.

"With the housing market now starting to lose a little bit of steam, and the economic indicators not quite as strong as many would have hoped for, that probably does mean that we'll see some slowdown in developer sentiment or developer confidence and, ultimately, a slowdown in the number of new dwellings being completed," he said.

While construction may start to slow down this year, it seems the flood of extra supply that is coming onto the market is having an effect on prices, particularly rental prices.

The CoreLogic–RP Data figures show that capital city rents grew at an average rate of just 1.8 per cent last year.

CommSec chief economist Craig James said that should ring alarm bells for would-be investors.

"A warning sign for investors was contained in the latest data on home prices – rental growth has fallen to the lowest levels in a decade," he wrote in a note on the data.

"More homes being built mean more competition for landlords and thus more favourable conditions for renters. If 2014 was the year of the home seller, 2015 may be the year of the tenant."

Topics: housing-industry, economic-trends, money-and-monetary-policy, australia

First posted