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The double-digit growth of home prices may slow down in 2016.
Chief Economist of HSBC Australia, Paul Bloxham, said the Reserve Bank can be expected to hike interest rates by next year, a move that will likely slow the booming property market in Sydney.
He said that the prices at which Sydney houses have been selling is running at an unstable pace, and that purchasers must be very careful because there has to be a correction at some point. According to HSBC’s forecast, instead of suffering a big fall, house prices in Sydney will simply become broadly flat next year.
The CoreLogic RP Data home value index reported a surge of 12.4 in Sydney property prices in 2014.
So far, the market has sustained and continued its pace, going strong with a 3-percent hike in March 2015 alone.
With the Reserve Bank inclined to cut interest rates later this year, prices could rise even further.
The sluggish economy, according to Mr. Bloxham, may see a boost from a cut to the RBA’s cash rate, which has a recorded all-time low of 2.25 percent. However, he believes there is a risk that this would overheat the housing markets in Melbourne and Sydney.
He said that an alternative to boosting growth is for the federal government to delay its budget balancing attempt until next year up to 2017 when there would likely be a stronger economy.
The government tried a tighter fiscal policy in the previous year when the mining boom drew to an end, but when economic growth is sluggish, the timing is not right to impose tighter fiscal policy, he said.
He said he feels confident that the government has learned its lesson from 2014 when consumer confidence and retail spending took a blow as a result of a harsh round of budget measures.
Furthermore, Mr. Bloxham said he thinks this year’s budget will not damage confidence as much as it did last year. He expects and wishes to see more support from the fiscal situation for the economy.
In HSBC’s forecast, economic growth is expected to increase to 3 percent, higher compared with the 2.5 percent pace of last year. The forecast also says commodity prices were unlikely to fall much further this year.
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Originally published as: Sydney house price boom ‘to run out of steam’ in 2016
