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Experts have suggested that recent growth in prices could mark the peak of the pandemic bounceback for the housing market.
Highlighting the link between price growth and increased investor activity in the Australian property market, Dr Wilson noted that the latter is still lagging behind its previous peak.
“Average investor market activity is around about 33 per cent of all lending. It’s now pushing up into the mid 20s, but it’s still well behind where it is traditionally, and particularly where it is in strong market price outbreaks as we have at the moment,” Dr Wilson said.
Asked about how long this record-breaking growth spurt could last, Dr Wilson predicted that going forward, “we will have a little bit more of a linear model in house price growth.
“We’ve killed interest rates, we’ve killed inflation, and there’s no prospect of higher inflation in the foreseeable future, and I’m talking years here, and that means there’s no prospect of higher interest rates for the foreseeable future. So the only way you’re going to be able to pay more for a property is if you increase your income, and income growth is the lowest we’ve ever seen,” he said.
As for Sydney, Dr Wilson believes growth will slow to between 1 per cent and 2 per cent by the end of the year.
“I think the March quarter in all markets will be the peak of this cycle, and I think that by the December quarter we would have started to run out of gas and to be able to see it,” Dr Wilson said.
But, despite predicting slower growth rates, Dr Wilson opined that property will remain an attractive asset class for most investors “because of the predictability of the continuity of growth.
“And that’s because interest rates are a dead duck. They’re gone. We don’t have to worry about the rollercoaster because all we have to do is wait for interest rates to rise and that could be a decade, another decade before that happens.”
Characterising the current auction clearance rates as remarkable, Dr Wilson predicted that “we’ll just chug along at around about a 3 per cent or 4 per cent per year rate going forward, and that’s actually a pretty positive environment.”
Prices will continue to rise, Dr Wilson said, “but they won’t rise at the sort of rate we’ve seen over the first quarter of this year, which was just cloud cuckoo land stuff.”
Listen to the full interview with Dr Andrew Wilson by clicking here.