Real estate price growth in Australia is expected to "slow in an underlying direction" over the next two years, according to the latest forecasts from NAB Group Economics.
Housing prices rose at an unexpected rate in the second half of 2019, led by Sydney and Melbourne. In fact, CoreLogic's quarterly figures showed a 4% increase in the overall price of homes, with Sydney and Melbourne growing more than 6%. On an annual basis, the value of homes in Australia increased 2.3%.
"As prices rebounded more strongly than expected in the second half of 2019, growth in house prices will slow in an underlying direction in 2020 and 2021 in Sydney and Melbourne," said NAB.
Based on NAB projections, overall price growth in Australia will reach 4% this year before slowing to 2.5% in 2021.
"Low interest rates are expected to continue to provide support, as are low unemployment and still healthy population growth in Sydney and Melbourne, however, constraints of Affordability will appear when prices reach their previous peak, "said NAB.
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NAB's price growth expectations are in line with the outlook for real estate professionals surveyed for the NAB residential property index. The index has reached its highest level in almost six years, with market sentiment becoming positive in all states.
Western Australia has benefited from a significant improvement in market confidence. NAB said this could indicate an imminent resumption of its prolonged slowdown.
In addition, price growth in Australia is expected to outpace rent increases for the first time in two years. NAB said it could result in reduced yields.
Among the market concerns, the credit crunch remains the main problem.
"Tight credit remains the biggest constraint on the development of new housing and access to credit the biggest obstacle for buyers of existing properties, but real estate professionals have indicated that their market impact was less severe in the last quarter of 2019, "said NAB.
With the bright outlook for prices due to low interest rates, should investors and buyers be worried about a new bubble in real estate prices ?
According to a recent analysis by ING Australia, it is unlikely that the Reserve Bank of Australia's decision to maintain and even lower liquidity rates would trigger a price bubble for ;immovable.
"Unless we see some acceleration in quarterly annualized growth rates, this should not be necessary to constrain further easing of the RBA, although it is worth watching and may require action from the Australian Prudential Regulation Authority in terms of bank loan restrictions on property purchases, "said Robert Carnell, chief economist and director of research for the Asia-Pacific region at ING.
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