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House prices to hit near-peak levels by 2021

Sydney and Melbourne house prices could hit peak levels soon. Source: Getty

Economists who predicted property prices weren’t set to grow anytime soon may be biting their tongues.

In June this year, Domain economist Trent Wiltshire was a little cautious in his outlook about property prices, but now he predicts house prices to hit close to peak levels by the end of 2020, he told Yahoo Finance.

“There were some signs of a bit of a turnaround in mid-to-late June, but the past three-and-a-half months since then, the market has bounced back more stronger than I expected – stronger than pretty much everyone expected,” Wiltshire said.

So what’s changed?

According to Wiltshire, clearance rates were now in the low-70s in Sydney and Melbourne, and auction numbers have been picking up.

On top of that, prices have risen a few per cent in Sydney and Melbourne, and the trend is starting to spread toward Canberra and south-east Queensland.

“I think the rebound might be a bit faster than what I forecasted.”

How much will house prices grow by?

Where a few months ago Wiltshire predicted house prices to be in the low single digits, he thinks it will now be in the high single digits.

“Based on the indicators we’ve seen recently...it looks like house prices over the next 12 months for Sydney and Melbourne might be 5 per cent, maybe more.”

The big driver of this, Wiltshire said, is the Reserve Bank cutting interest rates.

“Obviously the Reserve Bank cut last week, and there’s a good probability they’ll cut again either later this year or early next year, so that will keep pushing prices up.”

But is it a definite rise?

There are still a few headwinds facing house prices.

“Wages aren’t growing strongly, unemployment is ticking up a bit and the construction sector looks pretty weak, so the labour market is not particularly strong, and that might hold things back,” Wiltshire said.

On top of that, he added household debt levels being as high as they are might mean that Aussies are a little more reluctant to take on more debt with interest rates being cut.

“I still think lowering rates will transfer into higher property prices, but just maybe not as much as in the past.

“Yes this rebound is looking to be stronger than expected, but I don’t think it’s going to be the 2013 or 2017 sort of boom.”

But not everyone is convinced.

Chief economist at REA Group, Nerida Conisbee, told Yahoo Finance it’s too early to be making these predictions.

“The reality is it’s too early to say,” she said.

“If the economy continues to struggle, primarily driven by political and economic turmoil overseas, the recovery could sputter really soon. If US-China trade war, Brexit, Hong Kong-China political issues are sorted out soon, then the recovery will continue.”

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