‘Very subdued capital growth’ forecast for 2016

Australia’s housing market has been tipped to slow substantially, although talk of a sharp correction has been dismissed.

NAB Group Economics has reduced its forecast for detached house price growth in 2016 and highlighted growing risks in the apartment market due to a sharp increase in construction.

On a national level, NAB expects house prices to increase just two per cent in 2016, largely reflecting slower growth in Sydney and Melbourne.

“In an environment where income growth continues to be modest, alongside lower population growth, the rates of house price growth seen in Sydney and Melbourne are unlikely to continue, suggesting more modest price gains in 2016,” NAB said.

“Regulatory changes to address risks in housing credit, particularly investor credit, have tightened conditions in the mortgage market, which is likely to have at least some impact on housing demand, even if only at the margin.

“However, the response from some corners claiming that these factors point to a sharp correction in house prices in the medium term are extreme in our view.”

NAB said that for a significant decline in house prices to occur there would probably need to be a substantial shock to the labour market or a sharp rise in interest rates – neither of which is forecast.

“Rather, the most likely outcome would be a prolonged period of very subdued capital growth,” it said.

“A period of subdued capital growth would also be consistent with our expectation of a period of subdued rental growth.”

[Related: Major bank dismisses housing bubble claims]

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