Potential 10pc growth ahead

By Reporter 19 August 2013 | 1 minute read

Despite claiming property remains overvalued, a head economist has explained that house prices are still on the rise, with predictions of an increase of up to 10 per cent.

In his latest Oliver’s Insight newsletter, AMP Capital chief economist and head of investment strategy Shane Oliver explained that despite the numbers showing property is still overvalued, an uptick of five to 10 per cent is expected.

“The cyclical upswing in house prices likely has further to run, with gains likely to be around 5 per cent to 10 per cent over the year ahead,” Mr Oliver noted.

This uptick in the housing sector is crucial to help the economy rebalance with a fading mining boom, he explained. However, this is causing fears of another housing cycle “where prices surge and languish”.

“The past year has seen a huge swing in sentiment towards house prices. A year ago, fears were rising that Australian house prices might be on the brink of a sharp fall – house prices were sliding, interest rate cuts were not getting much traction and it was becoming apparent that the mining investment boom was starting to fade,” Mr Oliver explained.

Despite some of the currently promising growth indicators - including auction clearance rates in Sydney that are showing strength - this is not broad-based, Mr Oliver warned while detailing what is occuring in each of the states and territories.

In Melbourne, Brisbane and Adelaide, prices were recorded as running between one and four per cent per annum.

PerthPerth, TAS Perth, WA is seeing strong growth, but “it’s hard to see this being sustained as the mining investment slowdown leads to slower economic growth in WA", he explained.

The picture in Sydney is strong, but it’s coming off a low base with little growth seen since 2004, with an average of 2.7 per cent per annum growth rate over the eight years - the same as inflation.

Potential 10pc growth ahead
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