Housing price growth peaked earlier this year and will slow to a pedestrian 1.9 per cent by next year as lending constraints tighten and other measures such as taxes on vacant properties take hold, ANZ says in a new research report.
Population increase and demand for housing will ensure growth stays positive in Sydney and Melbourne even as the national pace of price appreciation slows to an annual 4.4 per cent this year, the ANZ Australian Housing Update says.
Prices will fall in Brisbane next year, however, due to the "significant" volume of new supply expected to hit the Queensland capital, while home values in Perth and Darwin continue to fall.
Housing markets in Canberra, Hobart and Adelaide will grow slightly faster than the nationwide average through 2018, partly reflecting the fact that price growth in these regions in recent years has been relatively subdued.
"We anticipate that Australia's housing market will broadly cool from here," economists Daniel Gradwell and Jo Masters wrote. "We believe that price growth will slow sharply due to a combination of policy changes and macroprudential regulation."
While predicting a slowing in growth, the report by Australia's third-largest housing lender paints a benign picture of a housing market that is coming off its highs - price growth peaked in Sydney at 20 per cent and Melbourne at 17 per cent in March - at a sustainable pace. CoreLogic figures last week showed prices in the largest cities fell in May.
Rents to remain 'subdued'
The report also predicts housing construction to "gradually soften" to reflect a decline in new dwelling approvals that has already come down 20 per cent from their peak and likely have "a little further" to fall.
Approvals of new apartments, townhouses and semi-detached homes slipped to their lowest level in two years in April, the latest figures show.
"We think building approvals could fall by another 5-10 per cent in the next six to 12 months," the report said.
"The strong pipeline of work, however, means that activity is expect to rebound somewhat in Q2, and ease only gradually through the second half of the year.
"But the lack of new work coming through in approvals and commencements will eventually weigh more heavily on construction, especially in the apartment sector as the current backlog is completed."
The two biggest risks remain over-supply of new apartments in Brisbane and "to a lesser extent", Melbourne as well as settlement failures, the bank said.
Oncoming new supply in those two cities was also likely to keep rents - already rising at thier slowest pace in more than two decades - low, the report said.
"We expect rental price growth will remain subdued given the significant additions to supply currently reaching the market, especially in Brisbane and Melbourne," it said.
