Home prices in Australia rose much faster than expected in the fourth quarter, as the country’s hottest housing markets continue to sizzle.
The national statistics bureau’s house price index climbed 4.1% in the fourth quarter, following a 1.5% gain in the July-September period. That was the fastest expansion since the second quarter of 2015, and much higher than forecasts calling for a gain of 2.4%.
In annualized terms, the index accelerated 7.7% in the December quarter, compared to a 3.5% year-over-year gain in September.
Home values accelerated in most major urban regions, with Sydney and Melbourne continuing to lead the pack. Home prices in Sydney rose 5.2% from the previous quarter. Melbourne saw growth of 5.3%. Meanwhile, the cities of Canberra and Brisbane reported growth of 2.8% and 2.2%, respectively. official data showed.
The only region to report a decline was Darwin, where values fell 1.5%.
The influx of foreign capital has made Sydney one of the most overvalued housing markets in the world, according to various metrics. Instead of deflating, like many analysts had predicted, 2016 saw property values skyrocket more than 15%.
In Melbourne, values appreciated more than 13%, raising fresh fears that the love affair with Australian property was feeding a massive bubble.
Efforts by policymakers and the banks to limit financing and cool demand have failed to contain price growth in these two cities. Data from CoreLogic suggest that housing is too attractive from an investment perspective to deflate the market just yet.
When factoring in gross rental yields and capital gains, housing-as-an-asset earned a total annual return of 14.7% last year. These returns are significantly higher in Sydney and Melbourne.
At the other end of the extreme is Perth, a city that has been ravaged by a sharp mining downturn. The impact of weak commodity prices and lower mining investment is now being felt by the affluent suburbs. Home values in Perth declined more than 4% in all of 2016.