The model provides an additional tool for determining ANZ’s views about the housing market. The forecasts it produces are consistent with the views we published in previous research notes.
The main risk to this forecast is from interest rate movements. If wage growth disappoints again, it is unlikely the Reserve Bank of Australia will have enough confidence in the economy to hike rates.
In this case, we would expect dwelling prices to rise by more than the model predicts, because of the reduced interest rate drag.
The second half of 2017 saw an easing in housing price growth in Australia, compared with the first half of the year in which Sydney and Melbourne had pushed national growth rates into double digits.
Tighter macroprudential regulations were the primary cause of the slowdown, further dampened by soft wage growth.
There are a couple of leading indicators which provide information about likely changes in house prices in the short term: auction clearance rates and the credit impulse. The auction clearance rate has stabilised in recent months, suggesting the worst of the recent slowdown in price growth may be over.
While these indicators provide leading information about house prices, they are only useful over a matter of months. To accurately forecast housing prices over a longer-term, we needed a different approach.