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The boom time is over for house prices in Sydney and Melbourne, with top economists from our major banks and universities projecting prices will rise by less than 3 per cent across both cities in 2016.
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The large slowdown in house price growth - following last year's 7.8 per cent jump in capital cities - will hamper new residential housing investment and affect consumer spending at a time when confidence is already weakening, they say.
That's the majority view of 26 economists from financial markets, academia, consultancy and industry in the BusinessDay Scope economic survey.
Their projections have coincided with new data showing Sydney's median house prices fell 3.1 per cent over the December quarter 2015 - the first drop since June 2012 - with predictions Sydney's median prices could recede below the million-dollar benchmark by the middle of this year.
Overall, the expected slowdown in national house prices in 2016 is considered a good thing, with most of those surveyed saying prices will eventually stabilise at a more sustainable rate of growth.
"We see Australia's housing boom as over, but expect a soft landing," HSBC's chief economist Paul Bloxham said.
"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's chief economist Alan Oster said.
Recent tightening in financing conditions observed in the mortgage market, largely brought about by macro-prudential changes and major banks' reactions to higher capital requirements, was one of the main reasons for slowing prices.
Other reasons included the deterioration in housing affordability, the clampdown on borrowing by investors and illegal foreign purchases, and the gradual shift in the supply-demand balance which is resulting from slower immigration and increasing supply (with dwelling completions likely to exceed 200,000 for the second year in a row).
Richard Robinson from BIS Shrapnel says there will be small price increases in Sydney and Melbourne this year, while Brisbane will probably have the best growth (still a single-digit increase), and Adelaide will be flat while Perth prices will decline again.
The majority view is house prices will stabilise in Sydney and Melbourne, rather than fall seriously, in 2016.
However, four of the 26 economists predicted house prices will actually fall by 5-6 per cent in Sydney and 5-7 per cent in Melbourne by the end of 2016.
Stephen Koukoulas from Market Economics was the most pessimistic, projecting Sydney prices will fall by 6 per cent and Melbourne prices by 7 per cent.
The effect of slower price growth is expected to negatively affect consumer spending and residential investment, but not in a serious way.
"As long as prices don't fall in nominal terms, most households (except in Perth) will still feel wealthier after increases over recent years," Mr Robinson said.
"So the modest increases in house prices [in 2016] shouldn't retard consumer spending, which should continue to grow moderately while employment continues its growth."