Housing markets in Australia's capital cities have now exceeded affordability levels with house prices now expected to stagnate or weaken in the year ahead, a report says.
Industry analysts BIS Shrapnel's 2005 report on residential property prospects in capital cities predicts price growth will continue to slow during 2005/06, with some cities to experience price declines.
BIS predicted that anticipated interest rates rises next year would see prices stagnate or fall even lower in 2006.
"With housing affordability at its lowest level since the late 1980s boom, further growth will be constrained in a rising interest rate environment," senior project manager Angie Zigomanis said.
But despite a fall in consumer spending, the report expects a rise in business investment to drive economic growth, buoying employment growth and sending the unemployment rate down.
The report forecasts that as a result of growth, the Reserve Bank of Australia (RBA) will continue to tighten official interest rates.
BIS predicted the standard variable home loan rate would rise to 9 per cent by the second half of 2006, inducing an across-the-board downturn in house prices.
The report said housing prices in Sydney and Melbourne had already fallen in 2003 following rate rises with Brisbane, Perth, Adelaide, Canberra, Hobart and Darwin following suit in 2004.
The market is expected to bottom out in 2007 and 2008, with prices tipped to have declined by between 15 to 20 per cent from peak levels in some cities, before commencing an upturn in 2008/09.
Mr Zigomanis said Perth, Darwin and Brisbane were likely to emerge without a more significant decline given their more healthy underlying demand.
In Sydney, house prices fell by 3 per cent between March and December last year with a further 4 per cent fall forecast over this financial year.
Interstate migration out of Victoria has led to a drop in underlying market demand in Melbourne, contributing to a broader plateau in price growth with price growth expected to stall in the 2005/06 followed by a fall.
Following extraordinary house growth in Brisbane since 2001, median house prices are expected to show only a modest rise this year and in 2005/06 before falling 2 per cent in the next financial year.
Affordability levels in Adelaide remained healthier than in eastern capital cities although recent construction levels exceeded underlying demand, which was expected to slow house price growth to 2 per cent in 2005/06 before a 3 per cent decline in 2006/07.
Perth's market -- which showed only moderate growth in the upturn period -- would be also be affected with a forecast decline of 1 per cent in 2006/07.
- AAP
Aust housing exceeding affordability levels
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