Expensive housing and high household debt leave Australian housing vulnerable. But without a recession or much higher interest rates a property crash is unlikely.
However, the surging supply of apartments and the continuing strength of the Sydney and Melbourne property markets pose an increasing risk. Average dwelling prices in these cities are likely to see another cyclical 5-10% price downswing around 2018, with unit prices in oversupplied areas likely to decline 15-20%.
The combination of high house prices, huge gains in Sydney and Melbourne, low rental yields and a coming surge in the supply of apartments mean property investors need to be careful. Best to focus on undersupplied, less loved parts of the property market.
2015 has been a messy year for investors as worries about China, emerging countries and the Fed caused volatility and uneven returns across asset classes. Australian shares continued to underperform.
2016 is likely to see continued okay but uneven global growth, low inflation & easy monetary conditions. While the US is likely to raise rates gradually, other countries including Australia remain biased to further easing.
Most growth assets, including shares are likely to trend higher, resulting in reasonable returns. But volatility is likely to remain high as the easy gains are well and truly behind us.
The main things to keep an eye on are the Fed, China and the ongoing rebalancing of the Australian economy.