The Sydney market will continue its strong performance through to 2016, a new report from QBE claims.
Price growth in Sydney over the next three years is expected to total 19 per cent before slowing in 2016, according to the Australian Housing Outlook 2013-2016 report.
The report prepared by BIS Shrapnel shows this uptick in activity is centered on inner Sydney, which has a growth rate of 13.6 per cent. By contrast, growth in outer Sydney is only 3.1 per cent, well below the city’s median rate.
The data suggests Sydney’s strong overall performance is underpinned by lower interest rates, a deficiency in housing stock and a strong rental market.
The report predicts interest rates will remain at their current levels of 2.5 per cent until 2015.
From then onwards, successive rises are expected to take rates to a peak of 7.2 per cent by the end of 2016.
Price growth in New South Wales is being driven by upgraders, downsizers and investors, with first home buyers largely out of the market, BIS Shrapnel managing director Robert Mellor said.
However, the market should see a return of first home buyers within six months or so, Mr Mellor said.
The report also shows the Sydney rental market is seeing an increase in rental yields, while vacancy rates have stayed consistently below three per cent since 2004.
Meanwhile, strong rates of net overseas migration to New South Wales, coupled with high underlying demand, have led to a housing deficiency, Mr Mellor said.
This deficiency is expected to reach a peak of almost 60,000 in 2015, before dropping to close to 50,000 in 2016.