Calmer real estate market tipped for 2016

House prices will increase in all capital cities in 2016, but high-octane growth is out of the question, a new report has forecast.

Melbourne will be the strongest market in 2016, with house prices tipped to increase 5 per cent over the year, according to mid-range forecasts from Domain Group.

Growth of 4 per cent has been forecast for Sydney, Brisbane, Adelaide and Hobart.

Australia’s two weakest markets are expected to rally in 2016, with house prices forecast to rise by 3 per cent in Darwin and 2 per cent in Perth.

The report said that first home buyer activity will marginally increase, although numbers will remain low, particularly in Sydney.

Investor activity is forecast to remain robust and even increase, as investors shrug off rising interest rates in pursuit of relatively high yields and continued taxation advantages.

Australia is also expected to remain a key target for foreign investors – particularly from China – due to perceptions that the country is a safe haven for capital.

Domain Group senior economist Andrew Wilson said housing markets were likely to perform much differently in 2016 compared to 2015.

“Australian housing markets have generally experienced a rollercoaster ride of buyer activity and prices growth through 2015, in the face of dramatic changes to interest rates,” he said.

“Depending on local supply and demand, we are likely to see house price growth of between 2 and 5 per cent over the next 12 months.

“The extraordinary prices growth reported by Sydney and to a lesser degree Melbourne over the past year will not be matched over 2016, with those markets rapidly returning to the pack.”

[Related: Domain calls time on extraordinary Sydney boom]

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