Housing boom over in two years: BIS Oxford Economics

Housing boom over in two years: BIS Oxford Economics

30 June 2017

Business research and forecasting group BIS Oxford Economics expects Australia’s east coast housing boom to subside within two years, avoiding a crash like the 2007 US subprime crisis, reports the Australian Financial Review.

The BIS report, Residential Property Prospects 2017 to 2020, predicts that the house prices will gradually ease until 2019 and then possibly rebound.

The report’s findings merge with NSW Government expectations announced in the 2017-18 budget, released on Tuesday June 20.

“Macro-prudential regulations along with new Commonwealth measures are expected to moderate activity in the housing market in 2017-18,” noted the Budget Statement, adding that housing price growth would slow to three to five per cent in 2018.

A separate report from KPMG Economics joins the chorus of voices predicting a gradual housing slowdown.

A recently released report from KPMG titled, Housing affordability: What is driving house prices in Sydney and Melbourne?, also claims that any adjustment in housing prices is unlikely to be abrupt.

“Our analysis suggests that while short term factors have pushed median dwelling prices for Sydney and Melbourne above their long-term equilibrium prices by about 14 percent and 8 percent respectively (as at the end of FY2016), this degree of disequilibrium has been experienced previously in these housing markets and they have managed to return to equilibrium without price movements resembling a ‘bursting of the bubble’,” the report stated.

According to KPMG, there seems no reason why this will not occur again.

“Our forecasts show Sydney will experience a greater adjustment than Melbourne in the next few years, but this is likely to be gradual rather than a collapse in the median dwelling price,” Brendan Rynne, KPMG chief economist, told Business Insider.

“Whether or not the current Sydney and Melbourne housing prices constitute a ‘bubble’ is a matter for debate, but we estimate that short-term factors have pushed median dwelling prices above their long-term ‘equilibrium’ prices by about 14% and 8% respectively.

“But it should be remembered that this has happened before in Australia and prices have returned to equilibrium without the sort of crash we have seen in other countries after the GFC.

“We expect the same again to happen here now,” Mr Rynne said.

Meanwhile, Property Observer reports that the National Australia Bank has tipped that housing price growth in the nation’s major capitals will halve next year due to rising rates, tougher regulation, and falling housing affordability.

House prices are expected to grow by about 4.3 percent next year, which is less than half the current rate in four of the nation’s capital cities. On the other hand, apartment values are expected to go into reverse dropping 0.4 per cent.

The NAB report follows research by ANZ released earlier this month claiming that housing price growth would slow to 4.4 percent this calendar year, down from 10.9 percent last year.