Sydney housing prices are about to dip into single digit growth

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The price growth in Australia’s hottest housing markets of Sydney and Melbourne is slowing and will be down to single digits in 2016, according to home classified site Domain.

House prices are expected to increase across all capital cities in 2016 but at more subdued rates.

Expect house price growth of between 2% and 5% over the next 12 months. Compare this to the 15.6% rise in Sydney and the 12.8% increase in Melbourne over the last 12 months.

The Domain numbers are another set in a string showing a cooling in growth of housing. Housing finance commitments fell for the second month in a row in October, led down by investors who are starting to feel the impact of tighter restrictions on lending.

“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,” says senior economist Andrew Wilson.

“While first home buyer numbers are reviving gradually in most capital city markets, it is likely that the numbers will remain low, particularly in Sydney, for the foreseeable future.”

Wilson says capital city property markets will remain key targets for foreign investors, particularly from China.

“The demand from foreign investors reflects the country’s strong cultural and economic connections and is indicative of the security of local residential property,” he says.

“The increased investor activity reflects perceptions of Australia as a capital safe-haven. Buyers from China will continue to target CBD and inner-suburban apartment markets in Sydney and particular Melbourne and will remain a significant source of demand and supply in these burgeoning sub-markets.”

(Disclosure: Domain is owned by Fairfax Media, the publisher of Business Insider.)

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