Interest rates are set to remain around record lows for another year yet, and that’s set to support further gains in property prices before the market peaks.
That’s just one of the calls among four leading economists, who are all tipping lower rates for longer before any change occurs.
The Reserve Bank of Australia is expected to hold the cash rate steady at 1.5 per cent when the board meets for its monthly monetary policy session on Tuesday. That rate is at least half the interest rate that many people are paying on home mortgages.
Su-Lin Ong chief economist and head of Australian research RBC Capital Markets expects the property market to peak by mid 2017.
“There’s no way residential construction activity can keep going at the rate it has been.
“It has been the right response to have supply come on stream, but clearly there are pockets where there is going to be an oversupply and we are already seeing evidence of that in inner city, Melbourne and Brisbane and that will worsen but it will also help to temper house price growth.
“We have to remember that the underlying fundamentals of housing growth are still there, unemployment reasonable stable and population growth has eased but is still running around the decade average, mortgage rates are low.
“Housing construction has been a key contributor to growth and we expect that to continue in 2017 but too a much smaller degree than it has most recently.
Janu Chan senior economist St George Bank says the risks to the property market vary depending on the areas you are looking at.
“Sydney is relatively okay and I don’t think there is a massive risk of a sharp fall in prices anytime soon”.
“In the next year or so I don’t think we will see prices correct because we do have very low rates and the RBA will probably move again.”
Nicki Hutley chief economist Urbis says the RBA will continue to have eye out for frothy market conditions.
“As part of the government reinstating the RBA governor’s terms they didn’t charge the 2-3per cent inflation target but they did say there needed to be a more transparent link between monetary policy and financial market stability.
“So that is obviously a note to the RBA not to consider risks or bubbles in the asset prices when targeting inflation.
“I am not particularly worried, I know there are comments around Chinese investment.
“But at this stage it appears to be a small risk. The risks on housing are very much skewed to the negative side.
“If you are talking about property market prices, you will see some pull back in Sydney and Melbourne because there are so many apartments.
“But you are not going to see really massive falls in prices which is what you get when interest rates move higher.”
Jo Masters senior economist ANZ Bank believes that further regulatory changes could take effect if lower rates push property prices too much higher.
“The housing market though flips it the other way because lower rates are spurring activity and higher prices.
“Building approvals and construction activity have been one of the bigger surprises of this year.
“Governor Lowe made the comment that the risk to the housing market is there but it is less than it was previously.
“It is something to be watching. If the RBA were really concerned about it, I think the first thing you would see is anther round of macro prudential controls.
“Last year’s round of tightening of lending standards did slow housing finance growth and have an impact on the property market.”