A new report by BIS Shrapnel and QBE LMI has ruled out any substantial falls in Australian residential prices.
According to the Housing Outlook Report, the domestic and international economic conditions would have to change “dramatically” for the market to record a massive fall in house prices.
But while the nation is unlikely to see any dramatic reductions in property prices, Australia is also unlikely to see growth in dwelling prices.
Uncertainty surrounding the current economic environment means consumers are cautious and, as such, there is less demand for property at the current time.
With this in mind, BIS Shrapnel said property prices are unlikely to rise beyond income growth.
“While any substantial reductions in interest rates beyond those expected will allow for growth in purchase prices above income growth, it is more likely that the savings would be allocated for debt service,” the report read.
The report dismisses claims by Professor Steve Keen who, earlier this year, predicted Australian property prices would fall by as much as 10 per cent.
“I’d expect prices to be off up to 10 per cent lower than they are now by the end of 2012, in inflation-adjusted terms,” he said.
“The force driving prices down is the same one that drove them up. Houses are overwhelmingly bought with borrowed money, so keeping house prices where they are requires a constant supply of new mortgages at the same level as now; rising house prices require new mortgages to be growing compared to income; and house prices fall if mortgages grow more slowly than income.”