After 2½ years of rising prices, the housing market appears to be running out of steam.
Statistics show a clear trend in 2014 towards a slowing rate of growth as the year progressed.
And even if the Reserve Bank of Australia moves to cut rates next year (as some expect), it might not be enough to support the steep climb in prices we have experienced over the past few years.
But while the growth should continue to temper in 2015, there is a twist. Sydney and Melbourne have been leading the housing charge for the past two years but it looks like 2015 will see Brisbane, Adelaide and Hobart take the limelight.
These three capitals are forecast by CoreLogic RP Data to increase their respective rates of growth, whereas Sydney and Melbourne will experience growth but at a slower rate than in 2014.
Having said that, Sydney and Melbourne housing values should appreciate at a rate that is anything but shabby.
Now that the 2014 numbers to November are in it appears that Sydney's peak growth hit in April last year, whereas in Melbourne the pinnacle was January.
Perth housing price growth started to ease in December 2013, which is to be expected as it moved in tandem with the end of the mining boom.
Across the board – measuring the start of the housing boom in mid 2012 – capital city values have risen by varying amounts. Sydney took the top spot with 31.2 per cent, Melbourne came in second on 17.6 per cent with Darwin hot on its heels at 17.5 per cent, followed by Perth at 15.5 per cent.
Sydney's supremacy was demonstrated in the 2014 list of top-performing suburbs, with Centennial Park in the city's east scoring the highest median value at almost $5.5 million followed by neighbouring suburbs Point Piper ($5.4 million) and Elizabeth Bay ($4.8 million.) The top 10 included only one suburb outside Sydney, that of Peppermint Grove in Perth.
Investors and upgraders were still the biggest drivers of housing demand in 2014. But CoreLogic RP Data says that more recently the rate of growth from the upgrader segment has slowed while investor activity continues to escalate. This is currently at its highest proportion of lending, most acutely in NSW and Victoria.
(And this is despite rental growth being sluggish and at the lowest levels in a decade.)
It is this dynamic that has caught the attention and concern of the Reserve Bank of Australia, bank regulator the Australian Prudential Regulation Authority, and corporate watchdog the Australian Securities and Investments Commission.
The regulators have already fired a warning shot across the bows of banks and other lenders, just to let them know they will be taking a far closer look at the risk profiles of their loan books.
Stricter prudential scrutiny would easily put a dampener on marginally riskier lending and take a bit more heat out of the market in 2015. It might also provide the RBA a bit more latitude to cut interest rates if the economy continues to weaken and unemployment rises further.
Already the economy is experiencing poor consumer confidence readings and even poorer business confidence figures.
The strong housing market has been one of the brighter points on the radar in 2014.
The psychology of the wealth effect derived from watching the value of your home can be quite potent on consumer sentiment and behaviour, even if there is no plan to sell it.
Meanwhile the newly installed chairman of one of Australia's largest home lenders ANZ, David Gonski, warned shareholders on Thursday that in 2015, "while we expect interest rates to remain low and the decline in the Australian dollar will be good for many sectors of the economy, we believe the economy will grow somewhat more slowly than in the past year".
"In anticipation of this, we have been adjusting the way we execute our strategy to ensure we can deliver on shareholder expectations," he said. "It means that in a slightly more challenging environment, ANZ is well positioned to maintain its momentum and to deliver peer-leading earnings-per-share growth and total shareholder return over the medium-term."
Flight Centre
Further evidence of the cautious consumer was provided on Thursday when one of Australia's market darlings, Flight Centre, downgraded its profit expectations, with a worst-case scenario that earnings would fall in the current financial year.
Managing director Graham Turner said the domestic leisure market was to blame for the weaker than anticipated trading. It's a view that accords with comments made last week by Qantas boss Alan Joyce.
And this is despite Australian aviation industry's recent engagement in a capacity war that has kept fares at historically low levels.
News like this will be sending shudders down the spines of Australian retailers as they sit in the middle of the crucial final week before Christmas.
