NSW housing market expected to lose “top spot” status to Victoria

NSW has managed to hold on to the number 1 spot on the HIA’s Housing Scorecard this year despite a slight drop in score - but it may not stay there for long, amid a projected Australia-wide slowdown.

The annual HIA Housing Scorecard ranks the performance of the housing market in Australia’s eight states and territories based on 14 key indicators.

This year, New South Wales remained in the lead with a score of 94, but HIA’s Principal Economist, Tim Reardon, said Victoria, which came in second place with a score of 85, may quickly gain ground in the coming year.

“NSW may have retained top spot but with the slowdown in apartment construction predicted there is every reason to expect that Victoria, which has had fewer apartments in the pipeline and stronger population growth, may take over the top spot in 2018,” he said.

The eastern states dominated the HIA Scorecard results, with both NSW and Victoria showing strong population growth, growing demand for affordable housing and rising house prices.

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But while Victoria may be on its way up the ranks, the entire Australian housing market is in for a slowdown, according to Deloitte Access Economics latest business outlook report.

"The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in housing markets," Deloitte Access Economics partner Chris Richardson said in the report.

The report also predicted that the record low RBA cash rate of 1.50% may be around for a while, thanks to crushing levels of household debt. This debt, driven partly by borrowers taking on larger mortgages as house prices skyrocketed, puts the Reserve Bank in a tricky position when it comes to raising rates.

“People took on quite a lot of debt while rates were so low for so long. The RBA will be hesitant to rock the boat when household debt is so high,” explained Mozo Data Manager, Peter Marshall.

On the other hand, higher interest rates may discourage property buyers, resulting in a drop in demand that could drive better affordability in the property market. But for this outcome to become a reality, says Marshall, the Reserve Bank will need to proceed, “gradually and cautiously.”

As the Deloitte report put it, "Although we see rates rising, you shouldn't expect a sprint. We're sitting on a housing powder keg.”

If you’re paying off a mortgage, make sure you prepare for a future rate rise now. That means crunching the numbers to see if your budget can handle higher monthly repayments, and comparing refinancing home loan offers so you can make the switch to the best deal around.