QV apartment building in Melbourne's CBD. Photo: Craig Abraham
An oversupply of inner-city apartments could see Melbourne underperform the other major capital cities in terms of house price rises over the next three years.
Property forecaster BIS Shrapnel expects Melbourne house prices to rise by a subdued 6 per cent, falling short of the double-digit price gains expected in Sydney, Brisbane and Perth.
Melbourne's median house price is forecast to rise to $605,000 by June 2016, from $569,000 now.
Releasing its Australian Housing Outlook report on Tuesday, BIS Shrapnel managing director Robert Mellor said Melbourne still had a ''lot of supply of inner-city apartments in the CBD, Docklands and Southbank coming on to the market over the next 18 months''.
The firm expects Sydney house prices to soar 19 per cent over the next three years with the median prices forecast to reach $820,000.
Sydney prices will be driven by continuing under-supply, strong demand backed by population growth and overseas immigration over the three years. Perth house prices are tipped to rise 17 per cent, and in Brisbane 16 per cent.
Despite some warnings that house prices were heading towards a bubble, particularly in Sydney, Mr Mellor said affordability in nearly all capital cities was at its best levels since the early 2000s.
''While first-home buyer demand remains below long-term levels, upgrader demand is trending upwards and investor demand is accelerating as investors take advantage of improved [rental] yields, lower interest rates and the return of price growth,'' he said.
Mr Mellor said fears of a bubble were exaggerated. Sydney house prices had really ''gone nowhere'' over most of the past decade, while Melbourne had been putting on modest gains.
National Australia Bank chief economist Alan Oster expects house prices nationally to grow in line only with wages. ''We have an under-supply of houses and very low interest rates and that will keep prices rising,'' he said. However, rising unemployment will take a lot of the ''heat out of the market''.
Bureau of Statistics data released last week showed the unemployment rate fell to 5.6 per cent last month from 5.8 per cent in August. But analysts said the labour market remained soft and could weaken further.
Mr Oster said an unemployment rate above 6.5 per cent would have an effect on house prices.
''But you would not expect major property [price] problems unless there was unemployment over 9 per cent,'' he said.
The Reserve Bank has cut interest rates to record lows to encourage businesses and consumers to spend and invest as the effects of the mining boom fade. The aim is to boost non-mining sectors such as home building, retail and tourism.