House prices forecast to fall

By Lisa Macnamara March 15, 2008 02:40pm

• Average house prices forecast to fall
• In-depth: The latest interest rate news and features
• More personal finance news in our Money section

FLOW-ON from the American subprime crisis is likely to have a negative impact on Australian property prices.

The squeeze in global credit markets and loss of confidence in equities have implications for the property sector because of pressure on incomes and interest rates.

"Adding further upward pressure to the latter is the RBA's firm tightening bias, with further increases in the official cash rate possible," St George economists say.

Despite the healthy state of the Australian economy, with positive terms of trade helping to boost incomes and household spending power, uncertain financial conditions may limit any benefits for property growth.

Prices forecast to fall

St George says that, on balance, it's unlikely that the residential housing market will remain unharmed.

"For this reason, despite fundamentals such as lower vacancy rates and higher population growth rates, we have downgraded our forecasts for average house prices," chief economist Steven Milch says in the latest property market update.

Australian house price growth is now expected to be between 5 and 10 per cent over the next year, with Perth the only possible exception - possibly below the 5 per cent mark.

"It should be noted, however, that a cooling in Melbourne, Brisbane and Adelaide (where prices increased by a minimum of 18 per cent over the past 12 months) might actually assist in avoiding a boom-bust cycle," Mr Milch says.

The bank says history shows the last five housing cycles lasted for an average of five years from base to peak.

"The trough of the current cycle was end-2004 so the possible timing of the next peak is end-2009," Mr Milch says.