House prices likely to fall: economic forecast

HOUSING prices are expected to keep rising steadily over the next year or so then fall in 2017, a key economic forecast shows.

While Sydney and Melbourne are feeling the tension of double-digit rises in house prices, oversupply in most other capital cities will keep prices relatively flat.

And in mining regions where the resources slowdown is underway, homeowners can expect little growth, and possibly a stronger downturn, from 2017.

But the latest three-year property outlook from BIS Shrapnel also shows "doomsday predictions" were likely to be overblown.

Other than Sydney and Melbourne, most capital cities were expected to have weaker price growth because of slowing economic growth or an underlying oversupply.

BIS Shrapnel study author Angie Zigomanis said most capitals had a disconnect between the supply of home units, being built at record rates, and detached homes.

"Most capital cities are building apartments at record rates, driven by investor demand," he said.

"As these projects are progressively completed, strong tenant demand will be required to support rents and consequently values upon completion."

But he said with slowing population growth and most overseas migrants classified as "long term overseas visitors", the slowing demand would hit rentals.

"Moreover, this slowdown in net overseas migration is most evident in the mining boom states of Western Australia, Queensland and Northern Territory," Mr Zigomanis said.

The report said Townsville and Cairns, suffering from the mining slowdown and higher insurance premiums, were also likely to see a downturn in house prices between now and 2017.

However, that downturn is likely to turn to growing domestic demand late in 2016, which could drive interest rates higher, as well as house prices.

Mr Zigomanis said that after recent minimal wages growth, he expected the Reserve Bank to fire a "shot across the bow" to curb expectations of more wages growth.

The report forecast a likely 50 basis point rise in interest rates between 2015/16 and 2017.

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