2016 is tipped as the year that Sydney's red hot housing boom will come to an end, and it will even play second fiddle to Melbourne.
Prices in Sydney for houses and units are expected to rise by five per cent next year, following years of double digit price growth, property valuation firm Propell says in its latest housing report.
Propell said the price growth in the past 12 months broke another record with house prices up 19.8 per cent, and units up 11.9 per cent.
Melbourne house prices are expected to rise eight per cent and apartments two per cent, almost half the pace of the past 12 months.
Propell said that many real estate agents they speak to expect the market to peak in 2016.
"Demand continues to exceed supply, but affordability is an increasing issue," the report said.
A tightening of lending requirements and the looming possibility of interest rate hikes are the two main reasons price growth in Sydney is expected to slow, Propell said.
"A cut in the cash rate in September or October is still on the table, but the longer-term outlook is for rates to start increasing," Propell said.
"As far as property investors are concerned, there has already been a de-facto increase, as banks stop discounting investment home loans and require more equity."
Propell said that the Australian Prudential Regulation Authority's (APRA) other efforts to rein in stellar home price rises, mainly driven by investors, will also result in a levelling off in home price growth.
House prices for across Australia were up 11.6 per cent, and apartments up 7.2 per cent in the past 12 months, with average growth across the two categories next year predicted to be 2.95 per cent.
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