Australian house prices will likely moderate further this year as rents fall and more housing stock comes onto the market.
Australian capital city house prices rose by just 0.2 per cent in the December quarter, official figures show.
In the year to December, the house price index was up 8.7 per cent, the Australian Bureau of Statistics said.
JP Morgan economist Tom Kennedy said the annual price growth was lower than the 10.7 per cent rise in 2014 and he expects prices to moderate further this year.
"Today's print is consistent with the idea that some of the heat came out of the property market late last year, with the 4Q run rate the slowest since 2012," he said.
Sydney house prices, while up 13.9 per cent over 2015, fell 1.6 per cent in the December quarter compared to the previous three months.
Mr Kennedy said that was due to a correction of the "frothy" growth over the year, which has continued in 2016.
"The monthly house price data indicates Sydney dwelling price growth has continued to cool in 1Q, a theme we expect to persist this year," he added.
The best performing capital cities in the December quarter were Canberra, where house prices rose 2.8 per cent, and Hobart, which recorded a 2.5 per cent jump in prices.
CommSec chief economist Craig James said the moderation in price growth is a reflection of the rising supply of housing stock over the last two years, particularly cheaper apartments.
He said between 2011 and 2014 the ratio had been rising and rental costs were going up.
However, Mr James said the usual supply and demand equation was now coming into effect as more housing came onto the market and rents fell.
"Now there's more homes out there so buyers have a lot more choice," he said.
"Prices are coming down to a sustainable rate and that's likely to continue."
CAPITAL CITY HOUSE PRICES IN 2015:
- Sydney - rose 13.9 per cent
- Melbourne - rose 9.6 per cent
- Brisbane - rose 4.2 per cent
- Adelaide - rose 3.3 per cent
- Hobart - rose 3.5 per cent
- Canberra - rose 6.0 per cent
- Perth - fell 2.9 per cent
- Darwin - fell 3.2 per cent