There’s been plenty of speculation, and a prominent property research company has now made the call: Australia’s two biggest markets are due for a change in ranking within the next year, against a backdrop of declining price growth nationwide.

Melbourne’s dwelling price growth will eclipse Sydney’s in 2016, but values will be growing at the slowest rate recorded since 2012, according to SQM Research’s 2016 Housing Boom and Bust Report.

Melbourne dwellings will grow at a rate of eight per cent to 13 per cent, compared to Sydney’s four per cent and nine per cent, according to the report.

That compares to a combined capital city outlook of three per cent to eight per cent, down from the 9.8 per cent recorded in the year to June 2015.

Much of the drag on the national outlook is down to the drop in Sydney, according to SQM Research managing director Louis Christopher.

“We forecast the national residential housing market will slowdown in 2016 predominantly as a result of a slowing Sydney housing market. However, we do not believe the market will record a fall in prices for the year. There might be one quarter perhaps where Sydney records a marginal decline. But that should be it.”

Other reasons for the slowdown are attributed to the APRA crackdown on investor lending, a slowing national economy and recent movements by banks to raise interest rates despite the RBA shifting rates downwards.

“One of the key risks to the housing market over the medium to long term is the looming threat of global deflation, and this is quite a danger to our markets here given the level of debt in the housing market right now, which we note has risen again against incomes over the course of 2014/2015 to be at all-time highs. This threat became all too apparent this week when Westpac lifted their variable home loan lending rate,” Mr Christopher said.

However, Mr Christopher said it is highly unlikely that the national market will undergo an across-the-board price correction, and there may even be relief on the horizon for suffering investors in some capital cities.

“Perth and Darwin will record falls again next year; however, we believe by the end of the year both those cities may reach the bottom of their four-year downturn,” he added.

Along with Melbourne, two surprise cities make up the remainder of the SQM’s tips for high-performing markets in 2016.

“We believe that Melbourne will be the outperformer of the year, followed by the Gold Coast and Hobart. Each of these respective cities are benefiting from the lower Australian dollar,” Mr Christopher said.

The news gets better for investors in Australia’s second most populous city, with Melbourne tipped to beat Sydney in regards to rent growth in 2016.

Combined unit and house rents are forecast to grow between four per cent and seven per cent, according to SQM.

That compares to a prediction of zero per cent to three per cent for Sydney.

“We believe the threat of a massive oversupply in Melbourne has been overstated. Indeed, our vacancy rates for that city have fallen for the year as population growth and housing formation have quickly absorbed the new stock being completed,” Mr Christopher explained.

Source: Smart Property Investment