Subdued price growth expected early in 2017 – REA Group

Demand for property on skyrocketed in 2016, with the REA Group Property Demand Index increasing by 16.2% across the year.  The REA Group Property Demand Index is produced by the REA Group, owner and operator of

After peaking in October and November, demand for property dropped slightly to close out 2016, with the index falling 6.6% nationally in December. Victoria saw the largest decline over the month, driven by low levels of demand for both houses and apartments. New South Wales followed closely, suggesting the housing boom may be over, or at the very least slowing quickly, in both Sydney and Melbourne.

Despite December declines, Tasmania, New South Wales and Victoria continue to see the highest levels of demand in Australia with Western Australia and Northern seeing the lowest
While still early into the new year, the easing of demand nationally suggests that the record price rises we saw in Sydney and Melbourne last year are likely to be more subdued as we move further into 2017.

The key drivers of this demand decline are likely due to Australian banks increasing interest rates for buyers independently of the Reserve Bank of Australia in late November and early December and continuing affordability issues across the Eastern seaboard.

Given the RBA has indicated that it may still cut the cash rate further, the banks have sent strong signals that they will respond by not passing cuts onto borrowers and we expect out of cycle interest rate rises by banks to continue. This will be a key issue for borrowers this year, especially first home buyers and investors, with access to cheap money becoming more difficult.

The states which saw the largest declines in demand in December were New South Wales and Victoria. Continued concerns about apartment over supply are starting to cause concern in these markets with demand for apartments dropping by more than 7% in both states.

Western Australia and Northern Territory remain the lowest in-demand markets on, however Western Australia’s demand index was relatively stable and both states saw an increase in apartment demand. The result suggests that barring any surprising negative economic news or changes to the supply outlook in Western Australia, the bottom of the housing market could be close.

Tasmania continues to see elevated levels of demand and is now the strongest demand market in Australia. Relative affordability is likely a key factor driving interest

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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